Central bank must conduct further rate hikes in gradual manner

Overseas economies have grown moderately overall, although some weakness has been observed in part. 

Fear of Japan’s economy reverting to deflation has been dispelled. 

I believe it is necessary to move the BoJ’s focus more to upswings in prices

A sharp economic slowdown caused by credit contraction, which was common during past economic downturns in the United States, is unlikely.

Even after December rate hike, real short-term interest rates remain significantly negative in Japan. 

Must carefully monitor risk divergence of monetary policy stances between Japan and abroad could bring about high volatility in financial markets, particularly FX

BoJ must conduct further rate hikes in gradual manner. 

Believe it is necessary to shift the focus more to upswings in prices given expectations that overseas economies will experience a major shift to recovery. 

Bank of Japan is at a phase where it should deliberate on reducing the size of the balance sheet. 

BoJ should take time and be prudent in reducing its Japanese Government Bond purchases. 

My expectation is that Japan will see a true dawn this time around; in other words, this time is different. 

We will see a situation that transcends the former norm that wages and prices do not rise easily. 

During process of normalizing monetary policy, it is desirable for BoJ to avoid causing market volatility that significantly exceeds risk premium demanded by market participants.

A path toward an exit from the deflationary equilibrium has finally taken shape.

If such volatility were to occur, there is risk of the Japanese Government Bond market experiencing a deterioration in functioning or becoming dysfunctional, which would necessitate an appropriate response. 

Given weakening investment demand for super-long-term JGBs, BoJ must carefully examine market situation when it conducts interim assessment of its taper plan in June.

Broad recognition that Japan’s economy is already no longer in deflation also appears to be fostering a common understanding that the price stability target is almost achieved.

Since supply and demand conditions for super-long-term Japanese government bonds in particular are expected to remain of concern, BoJ must closely monitor developments in long-term interest rates and communicate effectively with the market.

In exceptional circumstances, Bank of Japan may need to consider a flexible response, including purchases of Japanese government bonds.