BOJ Deputy Governor Uchida: Japan needs to maintain easy policy

<p>
BOJ Deputy Governor Uchida:
</p><ul><li>At present, risk of
losing chance to hit price target with premature shift from easy
policy is bigger than risk of being too late in tightening</li><li>Japan is now at a
phase where it's important to patiently maintain easy policy</li><li>There is still quite
a long distance before conditions fall in place to raise short-term
rate target</li></ul><ul><li>
BOJ will maintain policy framework as we have yet to see inflation
sustainably, stably hit price target</li><li>Every policy has
cost, there is no free lunch</li><li>As we control
interest rates, the impact on market function is unavoidable</li><li>When inflation
expectations heighten, the effect of monetary stimulus increases but
so do the side-effects so we need to adjust both factors</li><li>BOJ will offer to
buy unlimited amount of bonds at 1.0% in fixed-rate operation to
contain interest rate rises</li></ul><ul><li>
When the 10-year bond yield is moving between 0.5% and 1.0%, we will
adjust amount of bond buying, use various operation tools to curb
excessive yield rise in accordance to level, pace of moves in
long-term rates</li><li>Unlike in December
last year, there is no clear side-effect, distortion in shape of
yield curve</li><li>There is high
uncertainty over economic, price outlook both upside and downside</li><li><p>
Inflation expectations showing signs of re-accelerating</p></li><li><p>
If
inflation expectations continue to heighten, rigidly capping 10-year
JGB yield at 0.5% would cause bond market distortion, affect market
volatility including for exchange rates</p></li><li><p>
Last week's decision was a pre-emptive step aimed at continuing
monetary easing without disruptions</p></li><li><p>
Timing for reviewing YCC
would depend on conditions at the time, as responding after problems
erupt would make it difficult to fix the problems</p></li><li><p>
BOJ’s
decision to make YCC more flexible is aimed at maintaining easy
policy, not something with eye on exit from easy policy</p></li><li><p>
BOJ must fine-tune YCC at times, make the framework flexible, to
ensure it can patiently sustain easy policy</p></li><li><p>
Will scrutinise
whether wages will rise sufficiently and underpin consumption, and
whether wage hikes will become embedded in Japan's society next year
and beyond</p></li></ul><ul><li>
We are seeing some signs of change in corporate wage, price-setting
behaviour</li><li>Even if inflation
overshoots, chance of wages rising sharply and triggering further
price rises is not big</li></ul><p>Uchida with some clear words on last week's decision from the BOJ. Keeping options open on YCC between 0.5 and 1%.</p>

This article was written by Eamonn Sheridan at www.forexlive.com.