US dollar yen 5 minutes
Bank of Japan board member Hajime Takada opened the door for Japan to raise interest rates and end negative interest rates.
His comments caused USD/JPY to drop nearly 50 pips, slowing its gains from the beginning of the week.
Although he stopped short of promising policy changes, his comments were the strongest indication yet that authorities plan to tighten policy and end negative interest rates.
He said the 2% inflation target was within sight.
“We need to consider agile and flexible responses, including ways to break away from the current extremely accommodative monetary policy or change gears,” he said in his speech.
Takata also highlighted spring wage negotiations, which Bank of Japan officials have said they have been keeping an eye on for the past two months.
He said many companies were offering higher wages than in previous years and that inflation was gaining momentum in negotiations.
The Bank of Japan’s policy rate is currently -0.10%, and most analysts expect it to move to 0%, but market prices will not reach 100% until June. These comments do not provide a timeline for when interest rate changes will occur, but the trend is certainly sooner rather than later. Adding to the urgency, the yen is near multi-year lows and Treasury officials are increasingly intervening to prevent yen selling.
Takata also emphasized that exit measures should include abandoning the yield curve control framework, ending negative interest rates, and committing to overshooting inflation.
