Bank of Japan Governor Kazuo Ueda said that a weak pace of underlying inflation is reason enough for monetary policy to stay ultra loose even as the rest of the world tightens aggressively.
Speaking alongside counterparts from the US, the euro zone and the UK, the recently appointed central bank chief didn't signal an imminent change in approach as the economy there contends with a problem long seen to have dissipated elsewhere.
"Although the headline rate of inflation is about 3% -- which is well above the 2% inflation target -- we think underlying inflation is still a bit lower than 2%," he said at the European Central Bank's annual retreat in the Portuguese hilltop resort of Sintra. "That's why we are keeping policy unchanged at the moment."
Ueda's remarks highlight the continued policy divergence from global counterparts, who cited the strength of underlying inflation as a reason to keep tightening. The yen weakened to a seven-month low this week, prompting warnings from government officials, and forcing Ueda to tread a delicate line in his journey toward attaining the BOJ's stable inflation target.
"The yen is being influenced by many factors other than our monetary policy, including the policies of these three banks," the Japanese governor said, when asked about the currency. "So we will see. We will monitor the situation very closely."
Ueda has repeatedly stressed the high cost of premature tightening as green shoots finally emerge to generate sustainable inflation. With his more dovish stance than expected, the governor has made BOJ watchers push back their policy forecast after taking the central bank's helm in April.
Asked about the outlook for consumer prices, Ueda reiterated the BOJ's most recent forecasts. He observed that consumers' views are changing, but not yet enough.
"We are seeing that inflation expectations are rising, but as I said not to the extent that we are full in the 2% inflation expectations equilibrium," he said.
The central bank is widely expected to raise its projections at its next meeting on July 27-28 when about a third of surveyed economists forecast a policy change. They expect the bank to cite a brighter inflation outlook as a reason behind that shift.
Source : Bloomberg
