Bank of Japan board member Seiji Adachi spoke today and said:-
- Changing monetary policy frequently to stabilize foreign exchange movements would lead to significant changes in interest rate movements.
- If interest rate movements are too large, this would cause disruptions in household and corporate investments.
- If we focus too much on downside risks, inflation may accelerate and we may be forced to quickly tighten monetary policy as a result.
- By fixing interest rates at current zero levels until inflation permanently reaches our target, after which we may have to raise interest rates quickly later and thus risk damaging the economy.
- Responding to short-term foreign exchange movements with monetary policy would affect price stability.
- It is possible to think about responding with monetary policy if foreign currency movements cause significant changes in inflation expectations.
- The Japanese economy is recovering moderately, although there are some weak signals - Consumption as a whole remained stable mainly in spending on services.
- The Japanese economy is not declining but it is not in a strong state either with many uncertainties remaining.
- We have not yet reached the stage where we are convinced that there is a sustainable achievement of the target price, therefore, facilitating conditions must be maintained.
- And we must completely avoid premature interest rate hikes.
- We have to look not only at the downside, but also at the upside risks in guiding monetary policy.
- It is important to adjust the degree of monetary support in several stages, as long as core inflation continues to trend towards 2%.
- It is desirable to reduce the purchase of Bank of Japan bonds in several stages, taking into account the supply and demand in the bond market, functionality and liquidity.
- Reducing the purchase of Japanese government bonds by the Bank of Japan at a sharp pace may harm the economy.
- Consumer inflation is slowing down now but is likely to accelerate again from summer to autumn this year.
- If the pace of the yen's decline accelerates or is prolonged, inflation may again accelerate faster than expected and may require the Bank of Japan to accelerate raising interest rates.
- Of course, we will respond with monetary policy if such moves are material.
- There is no strong point of view on whether a reduction in bond purchases from the Bank of Japan should come sooner or later.
- The Bank of Japan needs a long time to decide what to do with the property of ETFs.
I don't want to say that Adachi looks hawkish, and no one at the BOJ is hawkish, but he looks quite frank with reasons to continue tightening monetary policy, albeit at a slow pace.
