BoJ’s Asada says expected economic impact of previous rate rises must be kept in mind

The expected economic impact of earlier interest rate rises must remain a consideration for the Bank of Japan (BoJ), board member Toichiro Asada said on Thursday. Underlying inflation continues to fluctuate around levels compatible with the BoJ’s price target, Asada added. 

Asada urges caution on further rate rises

Must be mindful of expected effect of past rate increases on economy. 

Financial conditions stay accommodative. 

Underlying inflation fluctuates around levels consistent with central bank's price target. 

With policy rate in neutral range, further hike could have greater effect on economy. 

Must be cautious of risk as rate hikes may harm economy, reduce core inflation. 

Mindful of risk overshoot in underlying inflation above target could hurt economy. 

Risk remains from past hikes, future increases could curb inflation if they slow growth. 

Central bank can use actual consumer inflation data to gauge risk of inflation exceeding 2%. 

Current price increases aren’t necessarily fueled by demand given weak growth, consumption. 

Even if Bank of Japan raises rates in future, must be cautious about pace of increases. 

Personally thinks recent consumption data aren't necessarily robust. 

Japan's economic growth poised to pick up moderately. 

Because monetary policy impact shows after at least a year, must closely monitor cumulative effect of BoJ’s rate hikes on corporate funding, household borrowing. 

Yen faces mildly dovish signal as BoJ’s Asada urges caution despite neutral rates

A score of 3.2/10 on FXS Speechtracker puts BoJ’s Asada’s speech exactly at his historical average. References to earlier rate rises and a neutral policy rate therefore offer no clear indication of a hawkish shift. Although underlying inflation is said to be fluctuating around the price target, his focus on accommodative financial conditions, subdued consumption and the possibility that further increases could damage the economy and lower core inflation suggests a mildly dovish bias for the Yen.

With current price rises not clearly being driven by demand, Asada argues that any future rate increases should be measured and gradual. That reinforces the view that aggressive tightening is unlikely. His emphasis on assessing inflation overshoot risks through actual consumer inflation figures, together with warnings that previous and future rate rises could restrain inflation by weakening growth, points to a cautious, data-dependent approach. Such a stance limits expectations of rapid rate increases that would support the Yen.

Yen shows little response to Asada’s comments

The Japanese Yen (JPY) has shown no significant response to BoJ’s Asada’s remarks. USD/JPY is trading around 159.65 at the time of writing, down 0.12%.