Bank of Japan (BOJ) board member Naoki Tamura emphasized the importance of a gradual approach to normalizing the central bank’s ultra-loose monetary policy in a speech on Wednesday. Tamura underscored the need for caution while steering the economy towards interest rate levels that allow for effective adjustment of demand and price movements.
While acknowledging some weaknesses in consumption and capital expenditure, Tamura expressed confidence in Japan’s economic recovery trajectory, foreseeing sustained moderate growth and a positive cycle where increasing wages drive inflation rates upward. He assessed the risk of medium- and long-term economic forecasts being disrupted as relatively low.
The BOJ recently concluded eight years of negative interest rates and unconventional monetary policies, signaling a historic departure from its focus on stimulating growth through extensive monetary stimulus measures. Despite this policy shift, Tamura highlighted that the lingering effects of prolonged easing persist, with short-term interest rates hovering near zero and long-term rates yet to be fully determined by market forces.
Tamura stressed the importance of prudent monetary policy management in navigating the transition away from massive stimulus programs towards normalization. As one of the more hawkish members of the BOJ board, Tamura supported the decision to end negative rates.
Following the recent interest rate hike, the yen has depreciated over 1%, reflecting market perceptions of the BOJ’s dovish stance and the anticipation of a delayed timeline for further rate increases. While economists anticipate additional rate hikes in the future, the majority do not foresee such actions until the fourth quarter of the year, according to a Reuters poll conducted after the BOJ’s policy shift in March.