The Bank of Japan's monetary easing framework designed to keep borrowing costs extremely low is "appropriate" while its side effects should be kept in check, its new chief Kazuo Ueda said Monday in his first press conference.
Ueda, who took the job a day earlier, suggested that a "broader" review of the BOJ's monetary policy over the past decade and beyond may come, at a time when its dovish stance draws a stark contrast with its global peers.
The BOJ governor said he will strive to complete the central bank's long-sought goal of attaining its 2 percent inflation target, despite it being challenging.
"Whether to keep the BOJ's yield curve control program depends on economic, price and financial conditions, and we need to compare the merits with the side effects," said Ueda, who is the first postwar BOJ chief hailing from academia.
"Based on the current conditions, it is appropriate to maintain" the yield curve control program, he said.
On his first business day as governor, Ueda visited Prime Minister Fumio Kishida at his office and agreed that there is no need, "for now," to revise a 2013 joint accord. The agreement has served as the basis for the central bank's monetary easing to achieve its inflation goal.
The BOJ has been forced to ramp up government bond buying to keep short- and long-term interest rates within a target range, with its swollen balance sheet posing a formidable challenge to the central bank when it decides to normalize its policy.
Financial markets expect the yield curve control program to be modified or scrapped under the new leadership.
While the BOJ has yet to attain the 2 percent goal stably, headline inflation has remained above that level for nearly a year. The rise has mainly been driven by higher energy and raw material costs exacerbated by the yen's sharp drop, a byproduct of the central bank's dovish stance.
"We would like to see trend inflation heightening a bit more, so the outcome of 'shunto' (corporate wage negotiations) has, so far, been encouraging," Ueda said. "That said, we have to see if this growth will be sustained from the viewpoint of achieving the 2 percent target stably and sustainably."
Tepid wage growth is a major reason Ueda's predecessor, Haruhiko Kuroda, justified the retention of powerful monetary easing.
After meeting with Kishida, Ueda said the two shared the view that Japan is no longer in a state of deflation because of the policy steps taken over the past decade in line with the agreement.
Ueda said he and Kishida agreed to keep in close communication and implement policies flexibly depending on economic conditions.
In the accord, the BOJ pledged to attain its 2 percent inflation target "at the earliest possible time," while the government vowed to take steps to promote structural reforms and boost Japan's growth potential.
Critics are calling for a review to make the target more flexible, but Ueda has said he does not see the need to revise the agreement.
Ueda took the view that the current policy framework he has inherited from Kuroda is complex, adding that he will try to "untangle" it during his five-year term.
His predecessor's tenure was marked by surprises, ranging from the 2016 introduction of a negative interest rate policy and most recently the December widening of the trade band for 10-year government bond yields.
"If we suddenly realize that 2 percent inflation can be achieved in a sustainable and stable manner, and normalize policy accordingly, this will require big changes, which will also cause financial market and economic disruptions," Ueda said. "We need to be able to make the right judgments in advance."
Ueda studied economics at the Massachusetts Institute of Technology and taught at the University of Tokyo. As a member of the decision-making board at the BOJ between 1998 and 2005, he witnessed the central bank's foray into uncharted territory with a zero interest rate and quantitative easing.
The first policy-setting meeting is scheduled for April 27 and 28, when the BOJ is scheduled to release new economic and inflation forecasts.
New deputy governors Ryozo Himino and Shinichi Uchida also attended the press conference, their first since assuming the posts in March.
Uchida, who served as an executive director under Kuroda, said he will aim achieve the inflation target during his five-year term.
