[TOKYO (Reuters)]- Here are the questions and answers from the interview with Ryozo Himino, Deputy Governor of the Bank of Japan.
Below are the questions and answers from the interview with Ryozo Himino, Deputy Governor of the Bank of Japan. (Reuters/Kim Kyung-Hoon)
— About the current situation and outlook for prices.
“If you look at the recent consumer price index, it appears to be relatively strong. In terms of lifestyle, I had the impression that food prices were particularly high, but recently it is spreading to various things around me. I think there are many people who feel that
“Basically, I take it that the increase in import prices is being passed on over time. There are signs of change, and it is important to ascertain the ratio of the shift in import price rises to the effect of these new factors.”
“We have not gone so far as to reconsider the view that price increases are centered on passing on prices, but we would like to take a closer look at the data that will emerge in the future.”
–Does your view that the core CPI growth rate will slow toward the middle of this fiscal year change?
“It’s not just (increased by) import prices, but I’m still not in a position to properly assess the impact of other factors.”
–Are you getting closer to achieving the 2% inflation target in a sustainable and stable manner?
“Looking at the central value of forecasts by private sector economists, the current trend is stronger than that of the BOJ, but the consensus is that the economy will continue to decline and will not return to 1%. It will be important to determine how much the factor of this and other factors such as labor shortage are.”
――Are you looking forward to the end of the year?
“You have to see what’s best at each point.”
Q: What are the risks of an unexpected acceleration of inflation in Japan?
“As far as the current indicators are concerned, the center of inflation is coming from goods rather than services, and a large part of the increase in goods can be explained by pass-through. No, but the economy is a living thing.
――What is the risk of falling into stagflation?
“If there is any specific concern that Japan will fall into stagflation in the current situation, I do not have such concerns, and if there is a concern, policy will be to prevent such a situation. We will try our best”
— What policy response would you take if you fell into stagflation?
“I don’t think we’re in a situation where we should be answering those hypothetical questions.”
Q: In conducting monetary policy, the Bank of Japan has stated that it will “flexibly respond to economic, price and financial conditions.” If fluctuations in foreign exchange rates and long-term interest rates, which affect prices, become large, will you take flexible measures?
“We must carefully read and decipher the messages brought by the market. We must thoroughly analyze the impact of market fluctuations on the economy. We will make a comprehensive decision by considering both the main scenario and the risk scenario of the financial situation as a whole.”
Q: What is the impact of the current depreciation of the yen on the economy and prices?
“I would like to refrain from commenting on the current movement of the exchange rate.”
Q: For the time being, do you intend to tenaciously continue with the current easing measures?
“Of course, we will make flexible decisions while monitoring the economy, prices, and financial conditions, but I think the way to go is to continue with monetary easing in the current situation.”
— Considering the side effects of YCC, wouldn’t you immediately take care of the side effects?
“I would like to refrain from commenting on specific policy measures, such as what kind of side effects of YCC can be specifically considered, when it will be done, or whether it will not be done.”
— Is it possible to make adjustments to monetary easing without major impacts on the financial system?
“Monetary policy should be managed in a manner that can maintain the stability of the financial system, and the Policy Board regularly discusses it based on examinations, off-site monitoring, and analysis of financial system reports. Depending on the environment at that time, the exit process may take various forms, but in any case, we will strive to ensure a stable transition, and we would like to encourage financial institutions to implement appropriate risk management. “
Q: The biggest fear for financial institutions is sudden and unexpected policy changes.
“The Bank of Japan’s policies affect the economy as a whole and various economic entities such as households and companies, so it is desirable not to cause sudden shocks. Sometimes it’s the unexpected.It’s a decision between avoiding sudden responses as much as possible and responding as flexibly as possible to the changes that are happening.When something really unexpected happens, it’s a last-minute decision. It would mean to do
――In light of the financial instability that has occurred in Europe and the United States, what are the risks to watch out for in the Japanese financial system?
“Currently, Japan’s financial system is in a stable state as a whole. There are domestic and overseas factors as risk factors going forward. Of course, financial institutions will have to come up with various ideas, such as what kind of added value they can provide to customers and whether there are further ways to cut costs, but if the low interest rate environment continues. I think the answer to is the hardest to find.”
“Overseas, perhaps the best thing for Japan is a soft landing in the US and Europe, and a successful end to the current tightening phase. One of the scenarios we don’t like is that more tightening is needed, but recent developments have made that risk relatively small.”
Q: Even if monetary easing is normalized in the future, what is the risk that some financial institutions will not be able to raise their lending rates smoothly, resulting in financial institutions that will not be able to raise their profits as expected and will damage their equity capital?
“Sometimes I hear the argument that when the economy is getting better and the exit is coming, it is good for the people, but the process of rising interest rates is not good for financial institutions, but that is not the case.”
“Of course, unrealized losses on long-term bonds may increase during the transition process, but basically we will move to a world where business models are easier to think about than where interest rates will continue to be low. I cannot agree with the argument that a virtuous cycle of the economy will cause problems for the banks.”
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