ON MONETARY POLICY AND INFLATION OUTLOOK "Monetary policy must be conducted by closely watching the economic and price outlook. Japan's economy is recovering from the impact of the COVID-19 pandemic. But uncertainty regarding the economy, prices and markets is extremely high. Consumer inflation is at 4%, above the Bank of Japan's (BOJ) target, but the rise is driven mostly by rising import prices. The rise is not driven by strong demand. "Consumer inflation is likely to fall below 2% in the latter half of the next fiscal year. It takes time for the effect of monetary policy to appear on the economy. It's standard practice to act preemptively to demand-driven inflation, but not respond immediately to supply-driven inflation. Otherwise, the BOJ will be cooling demand, worsening economy and pushing down prices by tightening monetary policy. "Japan's trend inflation is likely to rise gradually. But it will take some time for inflation to sustainably and stably achieve the BOJ's 2% target. "With the BOJ's current policy, Japan is no longer in a state described as deflation. It's true there are various side-effects emerging from the stimulus. But the BOJ's current policy is a necessary, appropriate means to achieve 2% inflation." --- "It is said that the effect of monetary policy takes half a year, or two to three years at the longest, to appear (on the economy and prices) ... What's important in guaging the outlook is to look at trend inflation. "It's not that simple as to look at a single data in gauging trend inflation. One of the very important tasks in guiding monetary policy is to look at various indicators to find out what trend inflation is doing. "There are some positive signs in trend inflation. But there's still some distance (to achieving the BOJ's 2% target). When more signs of achieving the inflation target come into sight, the BOJ can normalise monetary policy." ON STATE OF JAPAN'S ECONOMY "At present, it's important to support the economy and create an environment where companies can raise wages. It's important to maintain monetary easing to achieve the BOJ's inflation target in a sustainable and stable fashion, accompanied by wage hikes." ON COMMUNICATING WITH MARKETS
"Central banks seek to exert the effect of monetary policy on the economy through markets. Communication with markets is therefore very important." --- "At each meeting, the BOJ will revise its outlook on the economy and prices based on new information available at the time. Depending on its view on the outlook, the BOJ could change policy. At times, there could be a case where the BOJ would have to spur a surprise. But by communicating its basic understanding on monetary policy, the BOJ can minimise such surprises." ON EFFECT OF MONEY PRINTING "In normal times, when central banks increase asset buying, that pushes up interest rates and boosts demand. With interest rates at zero and not much room for rates to fall further, simply increasing money printing won't boost demand for goods and services." ON REVIEWING YIELD CURVE CONTROL (YCC) "There are various possibilities on what YCC could look like in the future. But I won't comment on what specific action the BOJ could take, as doing so could cause unintended market impact. In making the decision, it's desirable to take time and continue discussions with the BOJ staff and board members. "If trend inflation heightens significantly and sustained achievement of the BOJ's 2% target comes into sight, the central bank must consider normalising policy. But if trend inflation lacks strength, the bank must continue how to maintain its ultra-easy policy, while paying attention to deterioration in market function. "It's unlikely the BOJ will conduct bond-selling operation. In the event the BOJ tightens monetary policy, it will likely raise interest rates applied to financial institutions' reserves with the central bank. "It's true there are various side-effects emerging from the BOJ's YCC policy ... Targeting shorter-dated yields could be an option if the BOJ were to review YCC. But there are other various options." ON NEGATIVE RATE "It's true the policy is having a negative impact on financial intermediation. But the BOJ has taken various steps to ease the side-effects. Financial institutions have sufficient capital buffers."
ON WHETHER BOJ MUST CONDUCT COMPREHENSIVE REVIEW OF POLICY "If I were to be appointed governor, I will discuss that with other board members and consider doing such an examination as necessary. ON WHETHER BOJ MUST REVISE POLICY STATEMENT WITH GOVERNMENT "I don't see the need to change the statement's language committing to achieve 2% inflation at the earliest date possible." ON THE BOJ'S ETF BUYING "When the time comes to exit ultra-loose policy, the BOJ must think about how to phase out its ETF holdings. But there's some distance to the actual timing (of an exit), so it's premature to offer information on how specifically the BOJ could do this."
ON FOREIGN EXCHANGE "I will refrain from commenting on exchange-rate moves. As for the weak yen, it benefits exporters and some service-sector firms through an expected rise in inbound tourism. But it could hurt households by pushing up import costs. "The impact of currency moves varies widely for each entity. As such, sometimes there is scope to deal with such imbalances with distribution policy." (Reporting by Leika Kihara and Tetsushi Kajimoto Editing by Chang-Ran Kim)
