Bank of Japan Governor Ueda is speaking from parliament again today, answering questions:
- Low real rate supports economy and inflation
- Need to monitor FX and oil for real wages
- There is no clear evidence that Japan’s natural rate of interest continued to fall from five years ago, when its estimated to have been around zero
- BoJ can adjust degree of monetary accommodation via rate hikes if trend inflation accelerates gradually
Wage data from Japan today was not good:
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As a ps, The term “R star” refers to the natural rate of interest, also known as the neutral interest rate.
- This is a theoretical concept representing the interest rate that neither stimulates nor restrains the economy when it is operating at full capacity and with stable inflation.
- The natural rate of interest is important for central banks because it helps them set their policy rates.
- If the policy rate is above r*, the policy is considered contractionary, which could slow economic growth and lower inflation.
- Conversely, if the policy rate is below r*, the policy is seen as expansionary, potentially boosting economic growth and raising inflation.
- Determining the actual value of r* is challenging as it cannot be observed directly. It must be estimated using economic models that consider various macroeconomic factors, such as productivity growth, demographics, and global economic conditions. These estimates can change over time due to shifts in these underlying factors.
Yen bulls would have to be a little worried that Ueda said Japan R* is around zero. That doesn’t leave any room for rate hikes. The BoJ can, of course, takes rates above R*, but that comment is of concern.