Bank of Japan (BoJ) Governor Kazuo Ueda commented on Friday that from a long-term perspective, rising interest rates would benefit financial institutions by improving their profits. He emphasized that the BoJ’s extensive monetary easing, including its yield curve control (YCC) policy, was crucial for achieving the central bank‘s price target, although he acknowledged the side effects of such measures.
Ueda also highlighted the dual impact of rising long-term interest rates, which would increase corporate funding costs but also boost profits in a growing economy. He pointed to data showing that banks and firms are in good financial shape despite these challenges, underlining the ongoing accommodative monetary environment, which continues to support Japan’s economic recovery.
In response to concerns about potential market instability, Ueda confirmed that the BoJ stands ready to intervene if necessary, using market operations to stabilize yields in cases of abnormal movements. However, he refrained from commenting on specific levels where long-term interest rates might converge, or when exactly the BoJ might conduct emergency market operations.
Looking forward, Ueda suggested that further interest rate hikes could be possible if inflationary pressures continue to build, but warned that more aggressive rate increases could have unpredictable effects on the economy. He emphasized that the BoJ would remain vigilant, adjusting its monetary policy if underlying inflation moves closer to the 2% target.
The comments helped to sustain the recovery of the USD/JPY pair, which was trading near 150.20, up 0.37% on the day.
Key Quotes:
“Rising interest rates will help improve financial institutions’ profits in the long run.”
“We are ready to respond nimbly to market volatility, including through market operations.”
“More interest rate hikes could come if price trends continue to improve, but there may be side effects.”
Market Reaction: Following Ueda’s remarks, the USD/JPY pair held its recovery, trading at 150.20, reflecting a 0.37% gain on the day.
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