BOJ’s Adachi says it’s premature to tweak ultra-loose policy

© Reuters. FILE PHOTO: An office employee walks in front of the bank of Japan building in Tokyo, Japan, April 7, 2023. REUTERS/Androniki Christodoulou/File Photo

By Leika Kihara

KAGOSHIMA, Japan (Reuters) -Bank of Japan board member Seiji Adachi said it was too early to phase out ultra-loose monetary policy due to uncertainty over the price outlook, brushing aside expectations of an early tweak to its controversial yield curve control policy.

While Japan’s consumer inflation is accelerating at a faster pace than initially expected, risks to the price outlook were skewed to the downside in the long run due to growing signs of weakness in the global economy, Adachi said.

A downturn in the U.S. economy, in particular, would significantly hurt Japan’s economy and weigh on prices, he said.

“Amid huge uncertainty over the price outlook, there are upside and downside risks. In the long run, however, the downside risks appear to be larger,” Adachi said in a speech to business leaders in Kagoshima, southern Japan.

“When considering whether it’s appropriate to change monetary policy, we must carefully take into account such risks,” he said.

Markets are simmering with speculation the BOJ will soon tweak its yield curve control (YCC) policy, which has drawn criticism for distorting market pricing and crushing financial institutions’ profits.

Adachi said distortions in the shape of the yield curve have dissolved, arguing that there was no need to tweak YCC now.

“We’re seeing some changes in the public’s deflationary mindset, or the perception that prices won’t rise,” Adachi said.

“In a sense, we’re moving closer to achieving our price target. But there’s high uncertainty over our baseline inflation outlook, so it’s premature to tweak monetary policy,” he said.

Under current projections made in April, the BOJ expects the recent cost-push rise in core consumer inflation to moderate in coming months, but bounce back again driven by strong demand and wage growth.

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