Hard to debate at this stage to what extent the BoJ can shrink its balance sheet

Hajime Takata, a member of the Board of Governors of the Bank of Japan (BoJ), made several comments on the bank’s policy outlook and economic outlook during his speech on Thursday.

Key quotes

Japan’s economy is recovering moderately, although there have been some weak signs

Stock and currency markets have seen high volatility, but we still see our inflation target being met.

We are witnessing a further increase in import prices.

We need to be alert to the chance of a new wave of price increases, while keeping in mind the impact of the yen’s rise in early August.

It is difficult to determine the precise level of Japan’s natural interest rate.

Japan’s current real interest rate is below the expected natural interest rate, which means that monetary conditions remain accommodative.

Fallout from the early August market turmoil remains, so we have to analyze the impact for now.

Market reaction

At the time of writing, USD/JPY is holding on to renewed gains, still steady on the day at 143.70.