Japan’s new central bank governor Kazuo Ueda said he wants more time to judge whether wage growth will be sustained enough to keep inflation stably at the bank’s 2% target, suggesting he will be in no rush to dial back its massive stimulus.
Ueda faces a bumpy road as slowing global growth clouds the prospects for a sustained pickup in inflation and wages, a prerequisite for phasing out his predecessor’s controversial monetary stimulus.
“When looking at current economic, price and financial developments, it’s appropriate to maintain yield curve control for now,” Ueda said in an inaugural news conference on Monday.
If the BOJ sees that it can achieve its price target, it might need to normalise monetary policy, he said. “If not, we may need to come up with a more sustainable framework with an eye on the side-effects of monetary easing.”
The 71-year-old academic’s term began on Sunday, succeeding Haruhiko Kuroda, whose second, five-year term ended on Saturday.
Markets have been rife with speculation the BOJ could soon phase out yield curve control (YCC), a policy that caps the 10-year bond yield around zero, due to growing criticism that it distorts markets and hurts bank margins.
In parliamentary confirmation hearings in February, Ueda stressed the need to keep ultra-easy policy to ensure Japan sustainably achieves the BOJ’s 2% inflation target backed by wage growth.
But with inflation exceeding the target, many analysts expect the BOJ to tweak or end YCC, a policy combining a 0.1% target for short-term interest rate and a 0% cap for the 10-year bond yield, as soon as this quarter.
Long-stagnant inflation and wage growth in Japan are beginning to show signs of reviving. After touching a 41-year high of 4.2% in January, core consumer inflation remains above 3% as more firms hike prices in response to rising raw material costs.
To compensate households for the increase in living costs, major firms have offered wage hikes of nearly 4% this year in annual labour talks, the fastest pace in about three decades.
“The outcome of this year’s spring wage negotiations is welcome. But it’s necessary to scrutinise whether this move will be sustained,” Ueda said.
Mounting U.S. recession fears are among headwinds for Japan’s export-reliant economy. While the end to COVID-19 curbs is propping up consumption, some analysts warn a recent slew of price hikes for daily necessities could also hurt spending.
Ueda will chair his first policy meeting on April 27-28, when the board produces fresh quarterly growth and price forecasts extending through fiscal 2025.
Markets are focusing on whether the board projects inflation accelerating towards, or even hitting, 2% in fiscal 2024 and 2025.
Under current forecasts, the BOJ expects core consumer inflation to hit 1.6% for the fiscal year that began this month and accelerate to 1.8% the following year.
Ueda served as BOJ board member from 1998 to 2005, when the central bank introduced zero interest rates and quantitative easing to combat deflation and economic stagnation.