WASHINGTON: Underlying inflation in Japan remains “a bit below” the Bank of Japan’s (BoJ) 2% target, governor Kazuo Ueda said at a Federal Reserve research symposium, and as a result the bank will maintain the current approach to monetary policy.
“We think that underlying inflation is still a bit below our target,” Ueda said. “This is why we are sticking with our current monetary easing framework.”
Japan’s core consumer inflation hit 3.1% in July, staying above the central bank’s 2% inflation target for the 16th straight month, as companies continued to pass on higher costs to households.
Ueda said domestic demand was “still at a healthy trend” and business fixed-investment was “supported by record high profits”. Nevertheless, inflation “is expected to decline” from here, he said, with the underlying trend still less than the target.
The BoJ has said it needs to maintain ultra-low rates until it is clear that robust domestic demand and higher wages replace cost-push factors as key drivers of price gains, and keep inflation sustainably around its target.
Investors have been waiting for hints of when the BoJ may change its policy of yield curve control, under which the bank holds short-term interest rates at -0.1% and the 10-year bond yield around 0% as part of efforts to prop up growth and sustainably achieve its 2% inflation target.
It also sets an allowance band of 50 basis points around the 10-year yield target. The BoJ nominally kept the band unchanged last month but said it would now allow the 10-year yield to rise to as much as 1%. —Bloomberg
