BOJ Governor: "Prices Must Rise for Policy Easing...Long-Term Interest Rates Formed by Market"

Kazuo Ueda, Governor of the Bank of Japan (BOJ), stated on the 4th that if the underlying inflation rate rises, the degree of monetary easing will be adjusted accordingly.

[Image source=EPA Yonhap News]

According to Bloomberg and Nihon Keizai Shimbun (Nikkei), Governor Ueda appeared before the House of Councillors’ Committee on Financial Affairs on the same day and said, "If the economic and inflation outlook or risks change, it would be a reason to change interest rates."

He emphasized, "Our policy objective is ultimately price stability," and drew a clear line by saying that necessary policy implementation to support financing for fiscal spending will not be hindered. The Tokyo Consumer Price Index (CPI) for May, released recently by Japan’s Ministry of Internal Affairs and Communications, rose 1.9% year-on-year on a core basis excluding fresh food. This level met market expectations but still falls short of the BOJ’s 2% price stability target.

Along with this, Governor Ueda said, "Long-term interest rates will basically continue to be formed in the financial markets." He also confirmed the policy stance of responding with government bond purchases, stating, "If long-term interest rates rise sharply, we will proactively intervene from the perspective of encouraging stable interest rate formation in the market."

Earlier, in the Japanese government bond market, the 10-year yield briefly reached 1.1% on the 30th of last month, marking the highest level in about 13 years. At that time, expectations for a rate cut by the U.S. Federal Reserve (Fed) diminished, pushing up the U.S. 10-year yield, and uncertainty over additional BOJ rate hikes led to a rise in long-term interest rates. Consequently, ahead of this month’s BOJ Monetary Policy Meeting, the market has been searching for signals of further rate hikes and reductions in government bond purchases.