Bank of Japan Governor Kazuo Ueda continued to cautiously hint that gradual progress is being made toward achieving the bank's inflation target, in a largely dovish policy message that leaves open the door as to when it may come time for normalization.
"The likelihood of realizing the outlook for achieving the price stability target of 2 percent seems to be gradually rising," Ueda said in a speech Monday to local business leaders in Nagoya, Aichi Prefecture. However, as there are high uncertainties over wage growth and other factors, "sustainable and stable achievement of the price stability target is not yet envisaged with sufficient certainty at this point."
Ueda's rhetoric has gradually changed as he indicates slightly more confidence about the likelihood of achieving the goal. Adding to that are the bank's latest inflation forecasts, which project price growth will exceed the goal once again next year. After the September policy meeting, Ueda said the stable inflation target wasn't in sight, without any reference to growing certainty.
The governor's messaging may pave the way for a smooth transition to normalization when the time comes, allowing Ueda to avoid the sort of criticism lodged at his predecessor amid perceptions that market players were continually surprised by policy tweaks under the previous regime.
Ueda continued to stress high uncertainties surrounding the economic outlook. The bank needs to confirm that a wage-inflation virtuous cycle will kick in, with businesses raising prices to help them also boost compensation for workers.
The BOJ tweaked its yield curve control mechanism on Oct. 31 to address the potential side effects of monetary easing, a move some economists interpreted as a tiptoe toward normalization. Some 70% of analysts forecast a step toward tightening by April, according to a Bloomberg survey ahead of the October policy gathering.
The BOJ sharply raised its price outlook for next fiscal year to 2.8%, well above what economists were expecting. The upgrade meant that the bank is expecting inflation beyond its 2% goal for three consecutive years, an accomplishment the nation hasn't seen since 1992.
Source : Bloomberg
