Bank of Japan Governor nominee Kazuo Ueda said the central bank will need to consider normalizing policy if the outlook for prices improves, while backing a continuation of stimulus for now.
(Bloomberg) — Bank of Japan Governor nominee Kazuo Ueda said the central bank will need to consider normalizing policy if the outlook for prices improves, while backing a continuation of stimulus for now.
Speaking in a parliamentary hearing in the approval process for his appointment, Ueda said the central bank would stop its massive buying of bonds if it reached its target of stable 2% inflation. But he added it would still take time to reach that goal.
“If another clear step up in improvement in the outlook for the price trend comes into sight, we’ll inevitably have to think about a review of yield curve control or a move in the direction of policy normalization,” Ueda said.
Japan’s bond futures edged higher after Ueda said the central bank’s current easing was appropriate, while the yen reversed a small gain to trade little changed as traders mulled his comments on normalization. Bank shares dipped.
The modest market movements indicated traders were having difficulty drawing any fresh conclusions from the comments.
Global investors and BOJ watchers are closely scrutinizing Ueda’s hearing for any hints over how he would run policy as central bank chief amid intense speculation of policy adjustment under new leadership following a decade of massive stimulus.
Read More: What to Look for During Hearings for BOJ Nominee Kazuo Ueda
Prime Minister Fumio Kishida surprised market players with his choice for new central bank governor. Ueda, who served as a BOJ board member two decades ago, will be the first academic to become chief assuming he is approved. Kishida’s majorities in both houses of parliament mean the nomination is almost certain to get a green light.
In a Bloomberg survey conducted after Ueda was nominated last week, 70% of economists forecast a tightening step by July. Some economists have flagged the risk that the BOJ may tweak its yield curve control program in March before outgoing Governor Haruhiko Kuroda leaves office to give Ueda more time to consider his first move.
If the BOJ judges powerful monetary easing must go on, it would still need to think about the sustainability of yield-curve control, Ueda said.
But he added that he would refrain from getting into the specifics of curve control during the hearing and that there were various possibilities. Shortening the maturity of targeted yields was one among many options and the BOJ has been working to address the side effects of the policy framework.
There was no need to change a joint statement between the central bank and the government, he said. The landmark accord reached in 2013 commits the BOJ to achieving stable 2% inflation as soon as possible and is seen as a cornerstone of the Abenomics growth strategy of former Prime Minister Shinzo Abe.
Read More: Bond Bears, Yen Bulls Await Ueda Hearing With Anticipation
Kuroda, who was appointed by Abe to head the central bank, is due to step down on April 8 after a decade at the helm dedicated to spurring inflation in an economy that has struggled for years with weak or falling prices.
Data for January released earlier Friday showed that core inflation has reached 4.2%, more than double the BOJ’s price target. Under Kuroda, the BOJ has insisted that prices will cool below the target and that more evidence of stronger wage growth is needed to secure stable inflation.
Ueda echoed that view in his comments. He said the BOJ had no direct tool to impact wages, adding he was unsure about introducing a wages target.
–With assistance from Cormac Mullen.
(Adds more comments from hearing, market moves)
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