BOJ’s Tamura calls for slow but steady policy normalisation

TOKYO: Bank of Japan (BOJ) board member Naoki Tamura said on Wednesday the central bank must proceed slowly but steadily toward normalising its ultra-loose monetary policy.

“In my view, the central bank’s ultimate goal is to bring interest rates back to levels where they can be pushed up or down to adjust demand, and influence price moves,” Tamura said in a speech.

While warning of some weak signs in consumption and capital expenditure, Tamura said Japan’s economy was likely to continue recovering moderately, and sustain a positive cycle in which rising wages push up inflation rates.

“The risk of our medium- and long-term (economic) forecasts being derailed is likely small,” Tamura said.

The BOJ ended eight years of negative interest rates and other remnants of its unorthodox policy last week, making a historic shift away from its focus on reflating growth with decades of massive monetary stimulus.

While the BOJ overhauled its monetary policy framework, the side-effects of prolonged easing will remain as short-term interest rates are still stuck around zero and long-term rates are not yet driven fully by market forces, Tamura said.

“How to manage monetary policy ahead is very important to ensure we deftly roll back our massive stimulus programme, and move slowly but steadily toward policy normalisation,” he said.

Bank of Japan buys 5.95 trillion yen of JGBs in Jan, lowest since June

A former commercial bank executive, Tamura is considered by markets as among hawkish members of the board. He voted for last week’s decision to end negative rates.

Despite last week’s interest rate hike, the yen has tumbled more than 1% since the policy pivot, as markets’ dovish reading of the BOJ’s communication reinforced expectations that another rate hike would be some time off.

A Reuters poll taken after the March policy shift showed more than half of economists expect the BOJ to hike rates again this year, though most of those do not see rate hikes coming at least until the fourth quarter.