Japan’s central bank faces a different challenge from global peers because of the high risk that inflation there will end up below target, according to the International Monetary Fund’s No. 2 official.
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Japan’s central bank faces a different challenge from global peers because of the high risk that inflation there will end up below target, according to the International Monetary Fund’s No. 2 official.
“The Bank of Japan has a pretty complex decision to deal with,” Gita Gopinath, the IMF’s first deputy managing director, told Francine Lacqua in an interview with Bloomberg Television at the World Economic Forum in Davos. “Unlike the major economies of the world, they have inflation going up, but the risk of inflation sliding back well below their target remains high.”
She spoke on Wednesday shortly after the BOJ kept its main policy settings unchanged, leaving its negative interest rate at -0.1% while maintaining a trading band of 50 basis points around 0% for 10-year bonds. There had been some expectation that it would raise the cap or drop the yield curve control.
That move caught some traders by surprise but is unlikely to douse speculation that the BOJ will normalize policy as inflation accelerates and Governor Haruhiko Kuroda nears the end of his term.
“They have to do this complex trade off of keeping monetary policy accommodative while ensuring that it’s consistent with the inflation data coming up,” Gopinath said.
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