BOJ’s Ueda vows to communicate exit path once inflation sustainable

1:45 am Wednesday, May 10th, 2023

By Leika Kihara

TOKYO (Reuters) -Bank of Japan Governor Kazuo Ueda said on Wednesday the central bank will debate an exit strategy from its ultra-loose monetary policy, and communicate it to the public, once prospects to achieve stable inflation are in place.

Speaking in parliament, Ueda said it was too early to discuss specific plans of an exit from the BOJ’s massive stimulus programme, including how it could unload its huge holdings of exchange-traded funds (ETF).

But he said the central bank would likely sell the assets at market price if it were to do so in the future.

“The BOJ’s ETF purchases have helped underpin consumption and capital expenditure” by preventing market instability from hurting household and corporate confidence, Ueda said.

“We buy ETFs as part of our massive stimulus programme. We believe it will take a bit more time for Japan to sustainably and stably meet our price target,” he said.

Under a policy dubbed yield curve control, the BOJ sets a short-term interest rate target of -0.1% and caps the 10-year bond yield around zero. It also pledges to buy ETFs in huge amounts in times of market turbulence, as part of efforts to sustainably achieve its 2% inflation target.

Japan’s core consumer inflation hit 3.1% in March, well above the central bank’s target, and an index excluding fuel costs rose at the fastest annual pace in four decades in a sign of broadening price pressure.

The BOJ has described the price rises as temporary and driven by rising import costs, but some in the nine-member board have warned of the risk of an overshoot in inflation as wage growth picks up.

With inflation exceeding the BOJ’s target since April 2022, markets have been rife with speculation Ueda will soon phase out his predecessor’s massive stimulus programme that has drawn public criticism for distorting market pricing and crushing bank profits.

(Reporting by Leika Kihara; Editing by Shri Navaratnam and Jacqueline Wong)