BOJ Bold Move: The governor of the Bank of Japan, Kazuo Ueda, is sure that budget limits will not stop the slow unwinding of the Central Bank’s sizeable monetary stimulus. Ueda thinks this is essential because things change and the economy grows.
In a speech at a prestigious academic meeting that stirred, Ueda said that the Bank of Japan’s ultra-loose monetary policy has a long way to go before it ends. But because of how the economy is right now, there is a lot of talk on the market about the chance that Ueda will start to tear down the innovative support system that his predecessor, Haruhiko Kuroda, worked hard to build.
The main point of Ueda’s case is that if interest rates went up, the Bank of Japan would have trouble making money in many different ways. This is because the central Bank has to raise the interest rates it pays to banks that store cash there.
Ueda also says that the Central Bank will be able to make more money from interest income as its current government assets are replaced with new bonds with better return potential. He says that the exact effect a possible exit strategy might have on the Bank of Japan’s complicated financial calculations is still unknown and must be carefully planned carefully.
In a brilliant and robust speech at the annual meeting of the Japan Society of Monetary Economics, Ueda shows how committed the Bank is to its overall goal, which is written into law, of keeping prices stable. He keeps saying that actions necessary for guiding the country’s financial course will be taken without hesitation, no matter how well the Bank is doing financially.
Also Read: Thai Growth Forecast Adjustments: Revisions for Economic Outlook in 2023
Ueda says with certainty that short-term changes in profits and capital have no effect on a central bank’s ability to control monetary policy as long as prudent and thoughtful economic policies are continued to be followed with care.
With its yield curve control (YCC) strategy, the Bank of Japan keeps short-term interest rates at -0.1% and limits the return on 10-year government bonds to about 0%. Ueda says this strategic move has two goals: to get the economy going again and slowly raise inflation so that it sticks around 2%. The Bank also continues with an extensive program that started in 2013 with strategic planning to buy assets.
Even though academics and experts are scared that the Bank of Japan’s colossal balance sheet will make it hard to end its ultra-loose policy, Ueda sticks to his plan. Ueda repeatedly says keeping the money supply loose is important, even when inflation goes above 2% for a long time.
He says that this position must be held until inflation, first caused by changes in costs, becomes a steady rise caused by strong domestic demand and better pay in proportion. Ueda says that even though these things are happening, the Bank will still carefully think about an exit plan. This promise will be kept when it is clear that the economy is ready for a steady, long-term price goal.
Our Reader’s Queries
What is the symbol for JPY?
The Japanese Yen is the official currency of Japan, making it a cash-based society. Its currency code is JPY, and its symbol is ¥.
How does yield curve control work?
Yield curve control (YCC) is a monetary policy strategy used by central banks to regulate interest rates. This involves purchasing government bonds or other financial assets in varying amounts to maintain rates at a specific level. Unlike Quantitative Easing, YCC involves buying bonds at a slower pace.