BOJ’s Ueda Says Inflation Is Still Below Target, Weakening Yen
Bank of Japan Governor Kazuo Ueda said the central bank is still some distance from its inflation goal in comments that helped accelerate a weakening of the yen.
While Ueda also talked down the possibility of any rate cut to boost the economy, the mention of a possible need to offer support for the economy likely gave the impression that the bank’s next move to raise rates will be more distant.
“Governor Ueda has been toning down his comments on demand-pull inflation and emphasizing that underlying inflation is below 2% and there is distance to the BOJ’s target,” said Shoki Omori, chief desk strategist at
The yen was trading around 144.69 against the dollar when Ueda started his appearance in parliament and weakened as far as 145.29, piggy backing on broader greenback strength, before retracing some of the losses.
Ueda rolled out many of these usual comments that indicate the BOJ’s next move will be upward, even if traders interpreted his remarks to mean the next hike would likely come later rather than sooner.
“Our short-term policy rate is 0.5%,” Ueda said in response to questions in parliament. “We can say in general that our room to stimulate the economy when it confronts strong downward pressures is very limited.”
That comment tallies with Ueda’s view that the rate is still on the low side and needs to be raised when possible to give the central bank more policy room should the economy run into trouble. Japan’s policy rate is the lowest among Group of Seven countries while its rate of inflation has been the highest.
Still, amid reports that the finance ministry may be looking to cut back its issuance of super-long bonds and even buy some of them back, the comments offered a catalyst for traders to further push on the yen.
The yen is weakening “as Ueda repeats the message that Japan’s trend inflation remains below 2% and thus real rates will stay negative,” said Rodrigo Catril, senior foreign exchange strategist at National Australia Bank Ltd.
The BOJ is widely expected to keep its policy rate unchanged at a policy meeting next week after the bank has emphasized the “extremely” high uncertainties surrounding the outlook of the economy.
Some market participants had a different take on the currency move.
“He did say there’s some distance to 2% but that’s not really new, so I feel that it’s a bit more just broad dollar strength rather than the specific comments,” said Shinichiro Kadota, head of Japan FX and rates strategy at Barclays Securities Japan Ltd.
Source : Bloomberg
