Kuroda: "No Need to Raise Long-Term Interest Rates"

Mayor Denies Tightening Concerns Again

Haruhiko Kuroda, Governor of the Bank of Japan.
Photo by Yonhap News

[Asia Economy Reporter Lee Ji-eun] Haruhiko Kuroda, Governor of the Bank of Japan (BOJ), reiterated his intention to maintain an accommodative monetary policy, stating that "(additional) widening of long-term interest rate fluctuations is not necessary."

After concluding the monetary policy meeting on the 18th, Governor Kuroda held a press conference and emphasized the importance of financial policy based on ultra-low interest rates, saying, "It is important to create an environment where companies can raise wages."

Regarding the partial revision of monetary policy last month, he said, "Since it has not been long since the review of the operation (widening of long-term interest rate fluctuations) last year, there has been no improvement in market functions or resolution of distortions," but added, "It will take time for the measure to affect the market, and improvements are expected going forward."

On the day, the BOJ announced its intention to maintain the existing monetary policy, including keeping the short-term interest rate at -0.1% and the allowable fluctuation range of the 10-year government bond yield, a long-term interest rate indicator, at ±0.5%. It also decided to continue purchasing index-linked exchange-traded funds (ETFs) to increase the money supply in the market.

Governor Kuroda showed a stance to curb market interpretations that mention the limitations of Japan's monetary policy. Regarding the Yield Curve Control (YCC) policy, which involves unlimited purchases of government bonds to maintain long-term interest rates at a certain level, he said, "I do not think there is any special risk," and "the current monetary policy is sustainable." This appears to be mindful of concerns about fiscal burden, as the BOJ's government bond holdings exceeded 50% as of last year.

Regarding the decision to flexibilize the fund supply rate, he said, "It has the effect of stabilizing long-term interest rates in an appropriate form," but added, "However, this does not mean the limitation of the YCC policy," drawing a line against market speculation. On the same day, the BOJ announced its plan to flexibilize the lending rate of the 'Common Collateral Fund Supply Operation,' which lends funds to financial institutions.

Nihon Keizai analyzed this as an attempt by the BOJ to encourage banks' investment in government bonds and promote interest rate declines by lending long-term funds at a fixed rate. On the other hand, the market interpreted it as a signal indicating the limitations of the YCC policy, which fixes long-term government bond yields at a certain level through unlimited purchases of government bonds by the BOJ.

Furthermore, regarding the BOJ's upward revision of the inflation forecast on the day, it was explained that the rise in import prices had a significant impact. He stated, "The growth trend (in prices) is rising as the increase in import prices is passed on to prices," and "the risk of inflation is high."

He continued, "Monetary policy should be eased to create an environment where companies can raise wages," once again indicating the need to avoid tightening. Currently, Japan's wage growth rate has been stagnant for 30 years, failing to keep up with the pace of rising prices. According to the Ministry of Health, Labour and Welfare of Japan, real wages in December decreased by 2.2% compared to the same month last year.

On the other hand, the market predicts that Japan will soon shift to a tightening stance. Nihon Keizai explained, "The BOJ's upward revision of inflation forecasts for 2022 and 2024 is likely to raise expectations for policy adjustments by the next meeting," and "the struggle between the market and the BOJ is expected to continue after today."

This content was produced with the assistance of AI translation services.