Bank of Japan (BoJ) board member Naoki Tamura has clarified his previous statements regarding the central bank’s interest rate strategy, following comments made earlier Thursday. Speaking to Reuters, Tamura provided further context, noting that he is not suggesting the neutral interest rate should be set at 1%, and that pinpointing the terminal rate remains challenging at this stage.
Key takeaways from Tamura’s comments include his intention to assess how the economy responds to rate hikes in order to determine the appropriate neutral rate. He acknowledged that upward price pressures are gradually increasing, suggesting a potential alignment between the terminal rate and the neutral rate in the latter half of next fiscal year.
Tamura emphasized that the pace of interest rate hikes is not predetermined and could vary. While considering a neutral rate of 1%, the BoJ will raise rates in stages, depending on the likelihood of meeting its inflation target. He also clarified that the pace of rate hikes might not follow a rigid half-year interval.
Regarding BoJ’s purchases of Japanese Government Bonds (JGBs), Tamura reiterated that these are aimed solely at monetary policy objectives, not fiscal purposes. Furthermore, he stated that the central bank is not focusing on the fact that the current policy rate of 0.75% has not been seen in the past three decades. The timing for achieving the inflation target remains flexible, with decisions to be based on various indicators and feedback from businesses.
Market reaction: Following Tamura’s remarks, the USD/JPY pair showed a modest recovery, trading near 152.35, down 0.14% for the day.
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