BOJ’s Ueda: No Set Time Frame for Hitting 2% Inflation Target

By Leika Kihara

17:09 JST, June 2, 2023

TOKYO, June 2 (Reuters) – Bank of Japan Governor Kazuo Ueda said the central bank did not have a set time frame for achieving its 2% inflation target due to uncertainty over the price outlook.

Ueda’s approach contrasts with that of his predecessor Haruhiko Kuroda, who deployed in 2013 a massive asset-buying program to hit 2% inflation in roughly two years.

The BOJ’s target remained elusive until last year, when supply constraints and a spike in commodity costs caused by the COVID-19 pandemic and the war in Ukraine drove up Japan’s core consumer inflation near 4%.

“The time it takes for the impact of monetary policy to appear on the economy could move around a lot depending on circumstances. We therefore do not have any time frame in mind,” Ueda said on Friday.

“Having said that, our baseline view is that it won’t take so long as over 10 years. We’ll still seek to hit the target at the earliest date possible,” he told parliament.

Ueda also said it was premature for the BOJ to discuss details of an exit strategy from its ultra-easy policy, including whether and when the central bank could begin selling its holdings of real-estate trust funds (REITs).

“We are conducting the purchases (of REITs) as part of our massive monetary easing program. Given it will take more time to achieve our price target, we will maintain the easy policy,” he said, when asked by an opposition lawmaker on the likelihood of selling the BOJ’s holdings.

With inflation exceeding its 2% target for a year, market speculation is rife that Ueda will gradually phase out Kuroda’s stimulus that has drawn public criticism for distorting markets and crushing bank margins.

But the BOJ has kept interest rates super-low on the view the recent rise in inflation is driven mostly by cost-push factors, not strong domestic demand, and will prove temporary.

“Given uncertainty over the outlook, clarifying a set time frame for achieving our price target could have unexpected impact on financial markets,” Ueda said.

The BOJ’s stimulus package consists of heavy bond and risky asset buying, as well as a negative short-term interest rate target and a 0.5% cap on the 10-year bond yield.

While urging the BOJ to keep ultra-loose policy for now, the International Monetary Fund’s top economist said the central bank should be ready to tighten policy if inflation remains elevated for too long.