The Bank of Japan will proceed carefully with raising interest rates to avoid bond market volatility and any adverse impact on financial institutions, its governor has said, warning that unwinding the central bank’s ultra-loose monetary policy will be a “serious challenge”.
Kazuo Ueda told the Financial Times Global Boardroom conference that the central bank was making progress towards hitting its 2 per cent inflation target but cautioned that it was still “too early” to determine the sequence of its policy normalisation.
“When we normalise short-term interest rates, we will have to be careful about what will happen to financial institutions, what will happen to borrowers of money in general and what will happen to aggregate demand,” Ueda said. “It is going to be a serious challenge for us.”