Bank of Japan Governor Kazuo Ueda pointed to some positive potential aspects of higher interest rates under normal economic conditions.
Bank of Japan Governor Kazuo Ueda pointed to some positive potential aspects of higher interest rates under normal economic conditions, while also reiterating his pledge to patiently continue monetary easing in pursuit of stable inflation.
“The most obvious advantage of slightly positive inflation is that there is more room for monetary policy responses to an economic downturn,” Ueda said Monday in a speech at a conference organized by the Keidanren, Japan's largest business lobby, in Tokyo .
Kazuo Ueda (Photo: Bloomberg)
“I believe that greater economic stability as a result of securing space for monetary policy responses will have a significant positive impact on companies as they formulate their business plans,” the governor said in his final scheduled public address for this year.
While Ueda refrained from giving a clear hint on the timing of a possible policy change, he joins his deputy Ryozo Himino in highlighting some of the benefits that would come from a world without negative interest rates, including an improvement in net interest rates -revenue.
Japanese inflation chart (Photo: Bloomberg)
Ueda is heading into a crucial new year, with two-thirds of economists expecting the first rate hike since 2007 in April. About 15% expect this to happen next month.
Ueda said some have argued that prices and wages will stop growing as import price pressures ease, but he sounded more optimistic. He is hopeful that “this time the Japanese economy will emerge from the low inflation environment and establish a virtuous cycle between wages and prices,” he said.
The central bank maintained the world's last negative interest rate at a policy meeting last week. Ueda said Monday that a key point to watch is whether wages will continue to rise “significantly” during the annual wage negotiations in the spring.
The first outcome of the wage talks will come in March, a key reason why half of the economists surveyed by Bloomberg see the end of the freeze coming in April – even though Ueda did not immediately rule out an earlier move.
If “the probability of achieving the 2 percent price stability target in a sustainable and stable manner increases sufficiently, the bank will likely consider changing its monetary policy,” Ueda said.
First print: December 25, 2023 | 11:26 PM IST