July policy decision wasn’t part of any exit from ultra-loose policy

Bank of Japan (BoJ) Board member Toyoaki Nakamura is back on the wires on Thursday, noting that the “July policy decision wasn’t part of any exit from ultra-loose policy.”

Additional comments

I wasn’t against making YCC flexible, opposition was about timing.

Don’t think July policy move is causing any market turmoil.

Japan’s inflation isn’t demand driven yet, which is why output gap remains in negative territory.

Japan’s economic recovery required for BoJ to consider ending negative rate policy.

Decision on when to end negative rate policy will likely be made looking carefully at economic developments.

If Japan’s economy achieves sustained recovery, we won’t need ycc but unfortunately Japan’s deflationary mindset has not be eradicated yet.

When there is feeling Japan’s deflationary mindset is dispelled, we can get rid of YCC but now is not the time.

FX isn’t target of monetary policy.

FX moves have big impact on prices.

BoJ will closely watch impact of Yen moves on economy, prices.

FX isn’t driven by interest rate differentials alone.

Weak Yen benefits exports and inbound tourism, but is negative for domestic demand-driven firms and households.

Personally don’t see need to stick to January-March period in judging whether Japan’s economy ready for BoJ policy tweak.

What’s most important is to see whether Japan firms’ growth expectations heightening.

Will likely take time determining whether conditions are rife for BoJ to normalize monetary policy.

If unit labour costs rise more and replaces import price gains as key driver of inflation, that can be described as demand-driven inflation and likely prove sustainable.

Want to look at various data, including monthly wage survey and govt’s quarterly business survey, to determine whether firms have succeeded in creating business model allowing for sustained wage growth.

Separately, Japan’s NHK broadcaster cited that Japan’s Prime Minister (PM) Fumio Kishida is considering raising the nationwide minimum wage standard to 1,500 yen per hour by the mid-2030s.

Market reaction

USD/JPY was last seen trading at 145.93, losing 0.20% on the day.