Bank of Japan Governor Kazuo Ueda continued his dovish tone after Japan’s inflation accelerated again in April. “It could be very costly if there is a hasty change in policy and prevents initial progress towards the 2 percent price stability target, which is finally within reach,” said Kazuo Ueda.
Consumer prices excluding fresh food rose 3.4 percent from a year earlier, driven by higher prices for processed food and hotels, data from Japan’s Internal Affairs Ministry showed on Friday; consumer prices excluding energy and fresh food, a measure of inflation that deepened degree) rose 4.1% year-on-year, the highest level since 1981.
Also, rising food prices don’t appear to be ending anytime soon. According to a report by Teikoku Databank, about 5,600 food items are expected to see price increases starting in June. “Food price increases will continue through at least this fall,” the data firm said.
A re-acceleration in Japanese inflation in April has BOJ watchers expecting that the central bank may soon normalize monetary policy. Economists at banks including Goldman Sachs and Barclays now expect the BOJ to adjust its policy in July. Many BOJ watchers also said the BOJ would have to raise its inflation forecast in July, speculating that this could be accompanied by a policy adjustment.
Another reason for the market’s view is that Kazuo Ueda is widely believed to be unable to signal a change to yield curve control (YCC) in advance, as any pre-announcement could trigger a massive bond sell-off before it is formally confirmed .
Yoshimasa Maruyama, chief market analyst at SMBC Nikko Securities, said: “Kazuo Ueda said that monetary easing will continue and will not be normalized this fiscal year, but this does not rule out the possibility of adjusting the yield curve control.” Adjustments to yield curve control cannot be talked about in advance. Market participants have to understand that it will be a ‘surprise.’ I don’t think it would be surprising if this happened in the third or fourth quarter.”
However, Ueda Kazuo’s remarks are in stark contrast to market expectations. Kazuo Ueda suggested that the acceleration in inflation did not change the BOJ’s view that the acceleration in inflation was mainly driven by cost factors. While acknowledging that the BOJ’s inflation target is on the horizon, Ueda said there would be no rush to normalize policy so as not to nip the trend in the bud.
Kazuo Ueda said: “Take some time to decide whether it is appropriate to adjust monetary easing to meet future policy exits. The Bank of Japan will carefully support the maturity of the trend toward achieving the inflation target and is committed to doing so in a sustainable and stable manner. Achieving the 2% price stability target while raising wages.”
For now, Ueda’s determination to maintain ultra-loose monetary policy bodes well for those investing in Japan. Japanese shares extended gains on Friday, with the Nikkei 225 reaching its highest level since August 1990 and outperforming U.S. stocks so far this year. Elsewhere, the Topix held on to a 33-year high hit earlier in the week, boosted by electronics makers and services companies.
Source: Zhitong FinanceReturn to Sohu to see more
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