By Tetsushi Kajimoto and Takahiko Wada
TOKYO (Reuters) – There is no urgent need for the Bank of Japan to change interest rate control settings as there is still room to maneuver before interest rates hit their ceiling, a central bank board member said on Thursday, brushing aside market speculation .
The BOJ is pursuing a reflationary strategy to boost growth and escape decades of debilitating deflation and has a yield curve control (YCC) policy, with a target of -0.1% for short-term rates and 0% for interest on ten-year bonds. .
In July, the central bank adjusted these settings by allowing the 10-year yield ceiling to move flexibly within the upper and lower limits of 1%.
But with inflation exceeding its target for more than a year, there is a lot of speculation in the market that the BOJ could make further adjustments to its tolerance band.
Asahi Noguchi, a BOJ board member known for his reflationary stance, poured cold water on such speculation in his comments at a news conference in Niigata, North of Tokyo, where he had delivered a speech to business leaders.
“There is no need to rush anything because there is still room for a 1% ceiling (on the yield margin),” Noguchi said, noting that long-term interest rates have been hovering around 0.8%.
The BOJ will next meet for a policy meeting on October 30 and 31, where it will issue new quarterly growth and inflation projections. Noguchi expected upward revisions to the BOJ’s price forecasts.
“Inflation remains higher than expected, so price forecasts need to be revised substantially upwards for fiscal year 2023,” Noguchi added.
Policymakers should focus on improving wage growth to pave the way for sustainable inflation before adjusting easing policies, he said.
“We still need to manage policy with mainly downside risks in mind,” Noguchi said, citing for example that China’s economy could face the risks of deflation and low growth that Japan has faced for decades.
“There is still a long way to reach sustainable inflation,” Noguchi said.
Japanese wage developments, which have been largely flat over the past three decades since the bursting of the asset bubble, are being closely watched by global financial markets as the BOJ has emphasized that sustainable wage increases are a prerequisite for dismantling the massive monetary incentives.
Noguchi said household inflation expectations are rising steadily, but if wage growth lags behind price increases, consumers would have no choice but to reduce their spending.
He said consumer inflation would slow by the second half of this fiscal, in line with the waning impact of high import bills.
