While speaking in the Japanese parliament on Tuesday, new Bank of Japan (BoJ) Governor Kazuo Ueda said, “trend inflation remains below 2% but gradually accelerating, which is partly due to the effect of monetary easing.”
It takes very long for impact of monetary policy steps to appear on economy, prices.
Monetary policy steps taken now will affect economy, prices half-year, 1 year, 1.5 years ahead.
Tightening monetary policy now could push down inflation in future, which is already likely to slow on dissipating effect of import costs.
If we see risk of runaway inflation, we must normalize monetary policy.
We see risk of inflation undershooting forecast as bigger than risk of overshooting, which is why BoJ must maintain easy policy now.
At the time of writing, USD/JPY is off the highs, holding steady at around 134.15. Investors digest the commentary from BoJ Governor Ueda.
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