BOJ considers ultra-low interest rates a future option

The Bank of Japan governor said Wednesday that adjusting the central bank’s interest rate control policy could be an option in the future, but not now.

“If we meet our 2% inflation target, more flexible control of the yield curve could become an option,” the Bank of Japan governor told parliament.

The minutes of the BOJ’s September meeting show that central bank policymakers are aware of rising inflationary pressures. One of them called for communicating strategies for exiting a very loose monetary policy.

The BOJ is setting short-term interest rates at -0.1% and 10-year bond yields at around 0 in order to sustainably raise inflation to its 2% target.

The BOJ maintained its YCC targets at its September 22 meeting, and the governor said interest rates would remain low for two to three years. These statements led to a significant weakening of the yen and later prompted the government to intervene in the foreign exchange market to support the yen’s value.

Japanese consumer core inflation accelerated to an eight-year high of 3.0% in September, calling into question the central bank’s determination to maintain its ultra-loose policy. As the yen fell to its lowest level in 32 years, it further pushed up import costs.

The BOJ’s offer to buy unlimited bonds to protect the 0.25% cap on the 10-year yield also raised concerns about the side effects of continued easing.

The BOJ remains outside the global wave of central banks tightening monetary policy. This is because it is focusing on regulating the fragile economy with aggressive stimulus measures.

The yen weakened sharply against the dollar as the market focused on the difference between the BOJ’s ultra-loose policy and U.S. rate hikes.

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