The Bank of Japan ended eight years of negative interest rates and other remnants of its unorthodox policy on Tuesday, making a historic shift away from a focus of reflating growth with decades of massive monetary stimulus.
The shift makes Japan the last central bank to exit negative rates and ends an era in which policymakers around the world sought to prop up growth through cheap money and unconventional monetary tools.
Following are excerpts from BOJ Governor Kazuo Ueda's comments at his post-meeting news conference, which was conducted in Japanese, as translated by Reuters:
IMPACT OF CENTRAL BANK'S DECISION
"Today's decision will only lead to a 0.1% increase in short-term interest rates. We will also increase bond-buying nimbly if there is a sharp rise in long-term rates. I don't think deposits or lending rates will rise sharply from today's decision." SHORT-TERM RATES IN LINE WITH ECONOMIC AND PRICE OUTLOOK
"We reverted to a normal monetary policy targeting short-term interest rates, as with other central banks. We will choose the appropriate level of short-term rates in line with our economic and price outlook. But in doing so, we need to be mindful that there is some distance for inflation expectations to reach 2%. When we focus on this gap, it's necessary to maintain accommodative monetary conditions even under a normal monetary policy framework."
HIGH CHANCES OF INFLATION IN TARGET RANGE
"The likelihood of inflation stably achieving our target has been heightening, including from January through March ... As a result, the likelihood reached a certain threshold that resulted in today's decision. If the likelihood heightens further and trend inflation accelerates a bit more, that will lead to a further increase in short-term rates."
EFFECT OF BOJ'S BOND BUYING ON RATES AND MONETARY EASING
"It's true our huge bond holdings are having a huge impact on long-term interest rates that cannot be ignored. The fact we are holding huge government bonds does have a stimulative effect. But our main policy target will be the short-term interest rate."
ON THE THRESHOLD FOR THE NEXT INTEREST RATE HIKE
"If our price forecast clearly overshoots or, even if our median forecast is unchanged, we see a clear increase in upside risk to the price outlook, that will likely lead to a policy change."
DEFINING ACCOMMODATIVE MONETARY CONDITIONS
"In terms of how we define accommodative monetary conditions, it is essentially a condition in which actual interest rate is lower than the neutral rate of interest."
ON THE COUNTRY'S EXPECTATIONS ON INFLATION
"Japan's expectations of inflation, when looking at a timespan of 5 to 10 years, is likely somewhere around 1-1.5% ... At present, real interest rate is likely deeply in negative territory. Unless the neutral, real rate of interest is very deeply in negative territory, we can say Japan's monetary condition is accommodative."
ON YEN'S DROP AFTER BOJ DECISION
"As always, I won't comment on short-term currency moves. But if currency moves have a big impact on our economic and price forecasts, we stand ready to take an appropriate monetary policy response."
ON BOJ's MASSIVE AMOUNT OF JGBS AND ETF HOLDINGS
"We have ended our extraordinary monetary easing scheme. But we still hold massive amount of JGBs purchased during the extraordinary monetary easing. The same goes for our ETF holdings. These will remain as remnants of the extraordinary monetary easing scheme."
RISKS SURROUNDING GLOBAL ECONOMY
"As for downside risks, there are numerous risks surrounding the global economy such as the chance of a negative market shock. There's also the risk that consumption may not recover as much as expected. As for upside risk, that would a scenario in which corporate price and wage-setting behavior - which is already changing - makes further dramatic changes. I don't think the chance of this upside risk materializing is high. But we need to be mindful of such a risk."
ON BOJ'S HUGE BALANCE SHEET
"We will continue to buy roughly the same amount of bonds as in the past. As for the future, we will at some point eye shrinking our balance sheet given we've ended our extraordinary monetary easing. But we can't specify now when that will happen."
BOJ'S MAIN TARGET: SHORT-TERM INTEREST RATE
"Our main policy target will be the short-term interest rate. We will change the short-term rate level in line with changes in economic and price developments. I don't have any specific idea in mind on whether the next rate hike will proceed a tapering in our bond-buying or reduction in our balance sheet, or vice-versa."
