[PRESS CONFERENCE] BoJ Governor Ueda says BoJ has confirmed the virtuous cycle of wages and prices; Accommodative financial conditions will be maintained for the time being

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POLICY 

• Accommodative financial conditions will be maintained for the time being.


• Will consider options for easing broadly including ones used in the past if needed. 


• Policy framework of QQE with YCC and NIRP fulfilled roles.


• Will continue buying "broadly" the same amount of JGBs as before.


• Will use short-term policy rate as main tool.


• Important to keep easy environment in place considering distance to 2% target in terms of inflation expectations.


• Will carry out "regular" monetary policy.


• Interest rate levels will be determined by markets.


• Not thinking of setting a name for new policy framework since its "regular" monetary operation.


• Pace of further hikes depend on economy and price outlooks.


• Will not use JGB buying operations and balance adjustments as proactive monetary policy tool.


• Will always have Taylor Rule in mind when conducting monetary policy.


• Have come to stage where BoJ can slowly proceed with possible rate hikes, "which I think is appropriate".


• Spring wage talks were a big factor.


• If price outlook overshoots or shows possibility of overshooting, that could lead to a change in policy.


• Bigger upward price risks could result in rate hike.


• Accommodative conditions will continue until inflation overs below 2%.


• "Easy monetary environment" is defined as actual interest rate lower than neutral rate of interest.


• Real neutral rate of interest is hard to be identified, even among central bank experts.


• Available wage data are only partial and whether if the wage hike trend broadens is a point of consideration for further policy decisions.


• Massive easing has fulfilled its role; legacy of past policy, including massive JGBs and ETF balance, remains.


• Doesn't think new policy can be called "zero interest rate policy", not sure if the latest step can be called a normalisation.


• When asked about hesitation about today's decision, said uncertainties over wages and consumption remain.


• Does not have a preconceived notion of which would come first, reduction of bond-buying or rate hikes.

MARKET OPERATIONS

• Not thinking about telling the definitive upper yield cap to market operations division.


• Does not think BoJ will set an upper limit in bond yields in determining the appropriate level for conducting market operations.

JGB HOLDINGS

• BoJ's large holdings of JGB an impact on easy conditions.


• Stock effect of BoJ's JGB holdings on long-term rates cannot be ignored.

ETF

• Cannot say definitively about timing of reducing ETF balance sheet.

FX

• No comment on short-term currency moves.


• Will consider monetary policy response if currencies cause a big impact on economy and prices.

INFLATION/ECONOMY

• Judged sustainable, stable achievement of 2% inflation target has come into sight; hence decided to shift policy.


• Still a distance from the 2% target when looking at inflation expectations. 


• Possibility of achieving sustained and stable 2% target is not 100%, but it is rising.


• Accommodative conditions will firmly underpin the economy and prices.


• Private consumption is weak.


• Not just the spring wage talks, but solid services prices, brighter consumption outlook, improving consumer confidence and upgraded capex led to a change in stance in Q1.


• Downside risk include slower-than-expected consumption recovery.

RATES

• Do not expect deposit rates and lending rates to spike following today's decision.


• Will set short-term interest rates just like other central banks that use short-term rates as policy tool.


• Mindful of risks of sudden spikes in interest rates.

SME WAGES

• Conducted hearings with companies smaller than the ones BoJ usually survey in the Tankan.


• Closely watching whether trend of large wage hikes could broaden among small firms.


• Not necessarily confident enough that wages at SMEs will rise.

Reaction details (07:06)

• USD/JPY and JGB futures have been relatively stable 30 minutes into the press conference.

Analysis details (06:32)

• BoJ changed its monetary policy framework in which it ended negative interest rate policy and abandoned YCC, while it will guide the overnight call rate in the range of 0%-0.1% and apply 0.1% interest to all excess reserves parked at the central bank.


• BoJ also announced to end ETF and J-REIT purchases, as well as gradually reduce the amount of purchases of commercial paper and corporate bonds whereby it will discontinue purchases of CP and corporate bonds in about one year.


• However, it stated that it will continue roughly the current amount of JGB buying and it expects to maintain an accommodative monetary environment for the time being.
  


• Furthermore, the BoJ announced its planned bond purchases and stated that in case of a rapid rise in long-term rates, it will make nimble responses with JGB purchases and could increase the amount of JGB purchases or conduct fixed-rate purchase operations of JGBs, while it will provide loans under Fund Provisioning Measure to stimulate bank lending with an interest rate of 0.1% and a 1-year duration.
  

19 Mar 2024 - 06:32- Fixed IncomeData- Source: Newswires