Photo/Illutration Bank of Japan Governor Kazuo Ueda speaks during an interview with the media in Tokyo on May 25. (Kyosuke Yamamoto)

Bank of Japan Governor Kazuo Ueda said that the central bank’s 2 percent inflation target “should not be changed easily” but hinted at the possibility of reviewing the BOJ’s 10-year-long monetary easing policy.

“Modifying (the monetary easing policy) is possible if there is a change in the balance between (the policy’s) effects and by-products,” he said on May 25 in his first interview session with the media since he assumed the post in April. 

However, Ueda showed a cautious stance in his comments regarding the BOJ’s inflation target.

“Good buds have started sprouting (toward achieving the inflation target),” he said. “The price rise target is not something we should change easily. I would like to move forward with the 2 percent target.”

The 2 percent inflation target was set in January 2013 in a joint statement issued by the government and BOJ just after the start of the second administration of Prime Minister Shinzo Abe.

The central bank has continued large-scale monetary easing measures under this target.

However, some say that the joint statement and the target should be reviewed as it has become apparent that the prolonged monetary easing has had various negative impacts.

Nobuhiro Kiyotaki, a professor of economics at Princeton University in the United States, pointed out that asset prices such as properties are rising too high during a meeting of the Council on Economic and Fiscal Policy that the government held on May 15.

“It is desirable to end the monetary easing once the inflation rate stabilizes at between 1 and 2 percent,” Kiyotaki said. 

On such views, Ueda said that he is aware of the economic risks posed by soaring property prices.

But he also said, “Many attendees (at the meeting) were of the view that we should persevere in continuing the monetary easing. I intend to think carefully and not make wrong decisions.”

Major central banks or their equivalent in the United States and Europe have also set their inflation targets at 2 percent.

If the BOJ even hints at lowering its target, the markets may regard it as a tightening measure, leading the yen to appreciate quickly.

Ueda’s cautious stance is believed to reflect concerns for such risks.

At the same time, he hinted that he would be flexible in adjusting monetary policies.

In fiscal 2022, the consumer price index rose 3 percent from the previous fiscal year excluding perishables, due to the rising price of items such as crude oil and wheat as well as the weaker yen.

The figure, topping the BOJ’s inflation target, was the largest CPI increase since fiscal 1981 during the second oil crisis saw a 4 percent increase.

“I’m very aware that (the price rises) have put a significant strain on the public,” Ueda said. “But as the price increases of raw materials and fuels overseas have started easing, the inflation rate will fall.”

He added, “If we rush to take tightening measures, that would not only lead to a significant drop in the inflation rate, but also have serious negative impacts on employment and other areas.”

He suggested at the same time that he would consider modifying the bank’s policies if prices defy his prediction and continue to rise.

He said, “The possibility that my expectation is wrong is not zero. If it’s wrong, I would like to act quickly.”

The pillar of the bank’s monetary policy is yield curve control (YCC), a measure to artificially keep low long-term interest rates, which are the yields of 10-year government bonds.

The policy is criticized for weakening market functions.

Ueda declared that after the BOJ identifies the effects and by-products of the policy, “modifying the YCC is possible.”

He said he “is aware” that modifying the policy so that it controls shorter-term interest rates “is among the options” at the bank’s disposal.

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