BOJ’s Adachi says conditions are already in place to start normalising policy

Bank of Japan board member Seiji Adachi speaking.

• Conditions are already in place for the BOJ to start normalizing monetary policy.
• In normalizing monetary policy, the BOJ must take rate hikes in several stages.
• In normalizing policy, the BOJ must avoid drastic policy change that could stoke fear of a return to deflation.
• The BOJ will raise rates at a very moderate pace, maintaining an accommodative financial environment, until underlying inflation stably and sustainably hits 2%.
• Hiking rates at a rapid pace after the inflation target is met could cause a big shock to the economy.
• The BOJ should raise rates in several stages to achieve smooth policy normalization.
• Even when the BOJ raises rates, it must maintain an accommodative financial environment, meaning the real policy rate should stay below the natural rate of interest.
• At present, there is no need to raise rates rapidly to curb inflation.
• The BOJ must avoid a premature rate hike, using conservative estimates when gauging Japan’s natural rate of interest.
• Japan’s current real policy rate is sufficiently below the natural rate, meaning an accommodative financial environment remains in place.

• If chance of underlying inflation exceeding 2% heightens, BOJ will
  raise its policy rate at pace exceeding rate of inflation
• If inflation
  moves sustainably, stably around 2%, BOJ can guide monetary policy in
  a way allowing for policy rate to move roughly in line with neutral
  rate
• Uncertainty over the outlook means cannot project a specific level of the neutral rate
• Consumption is moving in line with the trend projected by the BOJ
• Output, exports and Capex are firm, but the corporate sector appears to be lacking

• Cannot ignore overseas economic uncertainties for time being
• Reversal of yen
  weakness may intensify, put downward pressure on consumer inflation
• I am somewhat
  cautious on whether firms will continue sufficient wage hikes next
  year
• Given global
  uncertainties, we must scrutinise developments in next year’s wage
  talks

His comments started off gung-ho on rate hikes but lost some gusto towards the end with a few caveats.

This article was written by Eamonn Sheridan at www.forexlive.com.