MNI BRIEF: BOJ Noguchi Sees Return To Gradual Rate Increases
Bank of Japan board member Asahi Noguchi said on Thursday that the bank will return to its basic policy stance of gradually adjusting the degree of monetary accommodation if economic activity and prices develop in line with the bank’s outlook, without elaborating on timing.
The impact of U.S. tariffs has been limited so far. While there is a possibility that progress in the pass-through of tariffs to prices could result in stronger downward effects on the economy, the general view at this point is that these effects are unlikely to be very severe, Noguchi told business leaders in Oita City.
“This means that the Bank will return to its basic policy stance first presented in March 2024, that is, if economic activity and prices develop in line with the Bank's outlook, the Bank will gradually adjust the degree of monetary accommodation,” Noguchi said. “The most realistic approach to actual policy conduct is to set a certain benchmark as the range where the neutral interest rate is thought to lie, based on various estimations of the natural rate of interest, and then conduct policy interest rate hikes incrementally over time while monitoring the impact this has on economic activity and prices.”
He added that the sole objective of monetary policy is to achieve price stability, and policy should not be directed toward stabilising exchange rates or asset prices per se.
“At the same time, exchange rates and asset prices are also important transmission channels for monetary policy. In fact, if the yen depreciates, this exerts an upward force on economic activity and prices through exports and imports,” Noguchi said.
He also warned that higher asset prices, such as land and stock prices, contribute to an upswing in economic activity and prices through expanded consumption via the wealth effect and increased investment spurred by credit easing.
