BoJ’s Ueda: Even after March policy shift, expect interest rates to stay low

Source Fxstreet

“Even after the March policy shift, expect interest rates to stay low and real interest rates to remain at deeply negative territory,” Bank of Japan (BoJ) Governor Kazuao Ueda said on Tuesday.

Additional quotes

Have no preset idea now on how and when we will adjust interest rate levels.

Expect to reduce our bond buying in future but can't say now when and by how much.

Won't immediately start unloading BoJ’s ETF holdings.

Market reaction

USD/JPY is holding its range just below 152.00, up 0.07% on the day, as of writing. 

Bank of Japan FAQs

The Bank of Japan (BoJ) is the Japanese central bank, which sets monetary policy in the country. Its mandate is to issue banknotes and carry out currency and monetary control to ensure price stability, which means an inflation target of around 2%.

The Bank of Japan has embarked in an ultra-loose monetary policy since 2013 in order to stimulate the economy and fuel inflation amid a low-inflationary environment. The bank’s policy is based on Quantitative and Qualitative Easing (QQE), or printing notes to buy assets such as government or corporate bonds to provide liquidity. In 2016, the bank doubled down on its strategy and further loosened policy by first introducing negative interest rates and then directly controlling the yield of its 10-year government bonds.

The Bank’s massive stimulus has caused the Yen to depreciate against its main currency peers. This process has exacerbated more recently due to an increasing policy divergence between the Bank of Japan and other main central banks, which have opted to increase interest rates sharply to fight decades-high levels of inflation. The BoJ’s policy of holding down rates has led to a widening differential with other currencies, dragging down the value of the Yen.

A weaker Yen and the spike in global energy prices have led to an increase in Japanese inflation, which has exceeded the BoJ’s 2% target. Still, the Bank judges that the sustainable and stable achievement of the 2% target has not yet come in sight, so any sudden change in the current policy looks unlikely.

 

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