Bank of Japan rules out rapid rate hikes, signals ending risky asset buying

Feb 8, 2024

Slogan: The bank of japan Will likely end its risky asset purchases, but avoid raising interest rates sharply while retreating monetary assistance, Deputy Governor Shinichi Uchida In the strongest signal to date that the end of its massive stimulus is nearing.
Uchida said service sector prices are rising as more companies raise wages and pass on rising labor costs, indicating his growing conviction that conditions are being created for phasing out the stimulus. Are.
“If durable and stable achievement of our 2% inflation target emerges, then large-scale monetary easing will have fulfilled its role and we will explore whether it should be revised or revised,” Uchida said in a speech in Nara. No.” Western Japan, on Thursday.
He said eliminating negative interest rates, which the market expects to happen in March or April, would be equivalent to a 0.1% percentage point increase in short-term interest rates.
“Even if the BOJ ends our negative interest rate policy, it is hard to imagine a path in which it would continue to raise interest rates so rapidly,” Uchida said.
Uchida's comments, which were closely watched by markets due to his record of skipping major policy signals, raise the possibility that the BOJ will soon lift short-term interest rates out of negative territory.
The yen and Japan's 10-year government bond yields fell, while the Nikkei stock average rose after the speech as investors reacted to his comments by dismissing the prospect of rapid rate hikes.,
Under the BOJ's massive stimulus program, it guides short-term interest rates to -0.1% and the 10-year government bond yield to around 0%. It also buys government bonds and risky assets to inject money into the economy.
Uchida said it would be “natural” for the BOJ to end its purchases of risky assets such as exchange-traded funds (ETFs) and trust funds that invest in assets, once it assumes that the 2% Sustained achievement of inflation is in sight.
He also said that the BOJ will not sharply reduce the volume of government bond purchases, and will ensure that long-term interest rates do not rise suddenly when bond yield controls end.
“If the BOJ revises the framework, it will lean more toward allowing market forces to set interest rates,” Uchida said. “However, in doing so, it will take careful measures so as not to create dissent before and after the amendment.”
A career central banker, Uchida has been deeply involved in formulating many elements of the BOJ's comprehensive stimulus program, including negative interest rates and yield curve control (YCC). His ideas are thus seen as key to the time and means to finish the program.
The BOJ is laying the groundwork for eliminating negative rates by April and reforming other parts of its ultra-loose monetary framework, sources told Reuters, but any subsequent policy cuts remain amid lingering risks. The possibility of hardening is slow.

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