(Reuters) - The Bank of Japan kept interest rates around zero on Friday and highlighted a growing conviction that inflation was on track to durably hit 2% in coming years, signalling its readiness to hike borrowing costs later this year.
The central bank also stuck to its guidance made in March to keep buying government bonds around the current pace, dashing hopes by some traders that it could soon taper purchases partly to slow the yen's declines.
Following are excerpts from BOJ Governor Kazuo Ueda's comments at his post-meeting news conference, which was conducted in Japanese, as translated by Reuters:
FUTURE MONETARY POLICY GUIDANCE
"As for our future monetary policy guidance, it will depend on economic and price developments at the time. We will scrutinise the economy, prices and their risks, and set short-term rates at each policy meeting."
"If underlying inflation moves in line with our forecasts, we could adjust the degree of monetary easing. If the economy and prices overshoot, that could also be a reason to change policy."
ON IMPACT OF WEAK YEN ON MONETARY POLICY
"Monetary policy does not directly target currency rates. But exchange-rate volatility could have a significant impact on the economy and prices. If yen moves have an effect on the economy and prices that is hard to ignore, it could be a reason to adjust policy."
"In gauging underlying inflation, we won't look at single data. We will look at various indicators and economic factors behind the price moves such as the output gap and inflation expectations."
"For now, the weak yen has not had a big impact on underlying inflation. But prices are overshooting as a whole and the chance of inflation moving in line with our forecasts is rising... There's a risk that we could see a second round of cost-push inflation."
"The impact of yen moves is usually temporary. But the chance of the impact being prolonged is not zero. For example, if rising inflation affects next year's spring wage talks, that could have a lasting effect on underlying inflation. That's not to say we need to wait until the outcome of next year's wage talks become clear. If we can predict such an impact, we could change policy."
YEN AND COST-PUSH INFLATION
"Depend on the degree of cost-push inflation, the weak yen could weigh on consumption through a decline in real income. We expect nominal wages to rise and dissipating cost-push pressure to lead to improvements in real wages. We expect consumption to strengthen ahead."
IS YEN GOOD OR BAD FOR ECONOMY?
"The weak yen has an impact on demand, including some positive effects. This, in turn, will determine underlying inflation in the medium- to long-term."
GOVERNMENT BOND BUYING PLANS AT ROUGHLY 6 TRILLION YEN/MONTH
"There's no change from March. As for daily operations, we have given the markets department some discretion ... There was no opposition from the board today on continuing to buy at the current pace of roughly 6 trillion yen per month."
LIFTING RATES TOWARD LEVELS DEEMED NEUTRAL TO THE ECONOMY
"We haven't narrowed down the level of neutral interest rate as much as we want, so we want to work on doing so as soon as we can. As we gradually raise rates, it's also important to look at how such moves affect the economy. In the past three decades, Japan has not experienced an interest rate hike so we don't have enough data. We'll need to tread cautiously. On the other hand, if we move too slowly we could be forced to act abruptly and cause a sudden shock. We'd like to strive to strike the right balance."