BOJ says to raise rates if price target to be achieved, despite losses on JGBs

TOKYO: Bank of Japan Governor Kazuo Ueda said on Monday the central bank will continue to raise interest rates if its underlying inflation target is likely to be achieved, despite potential losses on its government bond holdings.

“We have said that we will continue adjusting the degree of monetary easing if underlying inflation is likely to approach 2%,” Ueda said in parliament when asked about the impact of losses on the BOJ’s huge holdings of Japanese government bonds.

“Our policy objectives are to achieve price stability, and the pursuit of our policies would not be disturbed by considerations for the BOJ’s finances,” he added.

The BOJ in December released estimates on how future interest rate hikes could affect its earnings, which showed it expects to suffer red ink of up to around 2 trillion yen ($13.3 billion) if short-term borrowing costs were to go up to 2%.

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In the six months to September last year, the central bank’s bond holdings incurred record valuation losses of 13.66 trillion yen, while its holdings of exchange-traded funds gained paper profits of 33.07 trillion yen.

Asked about the impact of a stock market plunge on the BOJ’s ETF holdings, Ueda said a 1,000 point decline in Japan’s benchmark 225-issue Nikkei share average would cause valuation loss of about 1.8 trillion yen.

Last week, the BOJ kept interest rates steady and warned of heightening global economic uncertainty, suggesting the timing of further rate hikes will depend largely on the fallout from potentially higher US tariffs.

But Ueda also said at that time that rising food costs and stronger-than-expected wage growth could push up underlying inflation, highlighting the central bank’s attention to mounting domestic price pressures.