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26.12.2023

23:17

BOJ’s Ueda: Prospect of achieving price target not high enough

The Bank of Japan (BoJ) Governor Kazuo Ueda spoke on Monday at the Japan Business Federation meeting. Ueda said that the possibility of achieving the central bank's inflation target was gradually rising, and it would consider adjusting policy if prospects of sustainably achieving the 2% target increased sufficiently.

Key quotes

“Service prices gradually accelerating pace of increase, though it seems many firms feel it is not easy to pass on rising labour costs.”

“If positive wage-inflation cycle strengthens, and heightens prospects of sustainably achieving price target sufficiently, we will consider changing monetary policy.”

“We can not pre-set timing of future policy change, but will like to make an appropriate decision while scrutinizing economic developments, firms' wage and price-setting behaviour.”

“In an economy where positive inflation is sustained, nominal rates will be high and give central bank scope to cut interest rates sharply when necessary.”

“When monetary policy functions effectively, that means the risk of economy worsening sharply or returning to deflation will diminish.”

“BOJ patiently maintaining monetary easing to ensure signs of change in firms' wage, price-setting behavior is sustained.”

“BOJ will carefully examine economic developments, including whether positive wage-inflation cycle will strengthen, and make an appropriate decision towards sustainably hitting price target.”

“It may take some time but upward pressure from past rises in import prices will likely gradually ease.”

"We will carefully examine economic developments as well as firms' wage- and price-setting behavior, and thereby decide on future monetary policy in an appropriate manner,”

Market reaction

At the time of writing, the USD/JPY pair is trading around 142.32, down 0.08% on the day.

Bank of Japan FAQs

What is the Bank of Japan?

The Bank of Japan (BoJ) is the Japanese central bank, which sets monetary policy in the country. Its mandate is to issue banknotes and carry out currency and monetary control to ensure price stability, which means an inflation target of around 2%.

What has been the Bank of Japan’s policy?

The Bank of Japan has embarked in an ultra-loose monetary policy since 2013 in order to stimulate the economy and fuel inflation amid a low-inflationary environment. The bank’s policy is based on Quantitative and Qualitative Easing (QQE), or printing notes to buy assets such as government or corporate bonds to provide liquidity. In 2016, the bank doubled down on its strategy and further loosened policy by first introducing negative interest rates and then directly controlling the yield of its 10-year government bonds.

How do Bank of Japan’s decisions influence the Japanese Yen?

The Bank’s massive stimulus has caused the Yen to depreciate against its main currency peers. This process has exacerbated more recently due to an increasing policy divergence between the Bank of Japan and other main central banks, which have opted to increase interest rates sharply to fight decades-high levels of inflation. The BoJ’s policy of holding down rates has led to a widening differential with other currencies, dragging down the value of the Yen.

Is the Bank of Japan’s ultra-loose policy likely to change soon?

A weaker Yen and the spike in global energy prices have led to an increase in Japanese inflation, which has exceeded the BoJ’s 2% target. Still, the Bank judges that the sustainable and stable achievement of the 2% target has not yet come in sight, so any sudden change in the current policy looks unlikely.

23:00

AUD/USD posts modest losses around 0.6820 amid light trading AUDUSD

AUD/USD hovers around 0.6823 amid light trading volume on Wednesday.
The US Core Personal Consumption Expenditures Price Index (Core PCE) for November rose 0.1% MoM and grew 3.2% YoY.
RBA minutes indicated that any further tightening will depend on the incoming data.
December's US Richmond Fed Manufacturing Index will be released on Wednesday.

The AUD/USD pair posts modest losses during the early Asian session on Wednesday. However, the downside of the pair remains capped as the dovish Fed narrative is likely to keep the US Dollar (USD) under pressure. The market will be quiet amid the thin trading in the last week of the year. AUD/USD currently trades near 0.6823, down 0.02% on the day.

On Tuesday, the US Dallas Fed Manufacturing Business Index for December came in at -9.3 versus -19.9 prior. Meanwhile, November’s Chicago Fed National Activity Index arrived at 0.03 from the previous reading of a 0.49 drop. The Philly Fed Non-Manufacturing Index improved to 6.3 in December from an 11.0 fall in the previous reading.

The US Bureau of Economic Analysis revealed on Friday that November’s Core Personal Consumption Expenditures Price Index (Core PCE) rose 0.1% MoM and grew 3.2% YoY. The markets reacted little to the report. The Federal Reserve (Fed) is not yet ready to declare victory on inflation, but the slowing in core inflation opens the door for Fed funds rate cuts in 2024. However, the timing will be determined by core PCE figures in the coming months.

On the Aussie front, the minutes of the Reserve Bank of Australia (RBA) suggested that the central bank may hike rates again despite noting “encouraging signs” of falling inflationary pressures across the economy. The minutes added that any further tightening would be dependent on whether incoming data would alter the economic outlook and the evolving assessment of risks.

Later this week, the US Richmond Fed Manufacturing Index for December will be released on Wednesday, and the weekly Initial Jobless Claims will be due on Thursday. The financial markets will stay relatively quiet ahead of the New Year holiday.