BANK of Japan Governor Kazuo Ueda said on Thursday the central bank will continue to support the economy by maintaining accommodative monetary conditions for the time being.
“Japan’s medium- and long-term inflation expectations are still in the process of accelerating towards 2 per cent,” Ueda told parliament.
The BOJ ended eight years of negative interest rates and other remnants of its unorthodox policy on Tuesday, making a historic shift away from decades of massive monetary stimulus that was aimed at reviving the economy and quashing deflation.
In his first appearance in parliament since the decision, Ueda was grilled by a lawmaker on whether the move was made too hastily and could derail Japan’s fragile economic recovery.
“We could have waited until inflation is completely at 2 per cent for a long period of time. But if we did so, it’s unclear whether inflation would have stayed at 2 per cent. We might have seen a sharp increase in upside price risks,” Ueda replied.
“If such risks were to materialise, we could have been forced to raise interest rates sharply. This was partly behind our decision” to end negative rates this week, he added.
While cost-push pressures on inflation from past rises in raw material prices were easing, service-related prices continued to increase gradually, Ueda said.
The recent outcome of annual wage negotiations between big firms and unions, as well as hearings the BOJ conducted on companies, confirmed that Japan was seeing a positive cycle of rising wages and inflation, he said. REUTERS
