Japan’s Kato says its natural that monetary policy will revert to positive interest rates

Kato is described as a “ruling party heavyweight”. He is a former chief cabinet secretary and is seen by some analysts as a candidate to become future prime minister.

Kato spoke with Reuters:

• Japan is seeing conditions fall in place for the central bank to normalise monetary policy
• Bank of Japan must keep a close eye on economic conditions and coordinate carefully with the government in working out when to raise rates

• “Japan is shifting to an era where prices and wages rise, from one where both barely moved,”

• “It’s therefore natural for monetary policy to revert to the original style in which interest rates move in positive territory reflecting market function”
• “Key to the decision on whether to actually raise interest rates is Japan’s economy, especially consumption, which isn’t necessarily strong.”
• Kato said he was more concerned about the impact of the weak yen on inflation than its levels.

  “In the past two years, the public has clearly suffered from rising inflation”

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In other news out of Japan the Bank of Japan has reduced the amount of JGBs it has purchased in its latest operation in the 5-10 year window to 425bn yen from 475bn yen at the previous operation.

USD/JPY has dropped back, giving an opportunity for longs to re-establish.

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