BoJ’s Adachi: Central bank must maintain accommodative financial conditions until price goal achieved

Bank of Japan (BoJ) board member Seiji Adachi stuck to his dovish rhetoric during his speech on Wednesday.

Key quotes

 Changing monetary policy frequently to stablise FX moves would lead to big changes in rate moves

If interest rate moves are too big, that would cause disruptions in household and corporate investment

Responding to short-term FX moves with monetary policy would affect price stability

If excessive yen falls are prolonged and expected to affect achievement of our price target, responding with monetary policy becomes an option.

It is possible to consider responding with monetary policy if FX moves cause big changes in inflation expectations.

Japan’s economy is recovering moderately, although there are some weak signs.

Consumption holding steady as a whole mainly for service spending.

Japan’s economy not slumping but not in strong shape either with various uncertainties remaining.

BoJ must maintain accommodative financial conditions until price goal achieved.

We are not yet at stage where we are convinced that there is the sustained achievement of price target, so must maintain accommodative conditions.

We must absolutely avoid raising interest rates prematurely.

If we focus too much on downside risks, inflation may accelerate and might force us to tighten monetary rapidly as a result.

By fixing interest rates at current zero levels until inflation is durably at our price target, we might be forced to hike rates rapidly later and therefore risk hurting economy.

We must look not just at downside but upside risks in guiding monetary policy.

Important to adjust degree of monetary support in several stages, as long as underlying inflation continues to head toward 2%.

At some stage in the future, we will likely reduce our JGB purchases.

Market reaction

USD/JPY defends gains above 157.00 following these dovish comments. The risk-off mood is dragging the pair lower. 


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