BoJ’s Masu: Central bank needs to proceed with further rate hikes to complete policy normalisation
Bank of Japan (BoJ) policy board member Kazuyuki Masu said on Friday that Japan has shifted into inflation as policy normalization continues.
Key quotes
Must be vigilant as inflation driven by weak yen pushes up overall prices and affects underlying inflation.
BOJ is closely monitoring FX market moves and their impact on economy and prices.
BOJ expected to continue increasing interest rates if economic and price forecasts materialize.
Underlying inflation remains below 2 percent but approaches that level considerably.
It is clear deflationary customs are being eradicated as Japan enters a period of inflation.
What is important is to raise rates in timely and appropriate fashion to ensure underlying inflation does not exceed 2%.
BOJ must also move cautiously to avoid excessive rate hikes destroying cycle of moderate rises in inflation and wages that is just starting to roll.
BOJ must scrutinize market developments while examining future pace of its bond buying.
I am personally focusing on how prices of processed food excluding rice would move since that would be key to Japan's inflation outlook.
We also need to look carefully at whether Japan inflation is driven only by supply factors or by a combination of supply and demand factors.
Japan's real interest rate remains deeply negative.
Neutral rate estimate is only one reference in setting monetary policy.
As BOJ's policy rate nears estimated range of neutral, BOJ must more thoroughly examine price, jobs, financial market conditions.
BOJ needs to proceed with further rate hikes to complete policy normalization.
Market reaction
As of writing, the USD/JPY pair is down 0.28% on the day at 156.60.
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