Bank of Japan Governor Kazuo Ueda said early Wednesday that the Japanese central bank will continue to raise interest rates if economic and price developments move in line with its projections, per Reuters.
Key quotes
Japan’s economy is recovering moderately, albeit with some weaknesses.
Japan’s economy is likely to continue growing above potential.
Expect underlying inflation to accelerate gradually.
Uncertainty surrounding Japan’s economy, prices remain high.
Expect to keep raising interest rates if the economy, prices move in line with our forecasts made in the quarterly outlook report.
Japan’s real interest rate level remains extremely low.
Recent high inflation is due largely to the lagged effect of past rises in import costs, recent acceleration in food price rises.
Such cost-push factors are likely to gradually dissipate.
Underlying inflation is likely to gradually converge towards our 2% target even when a temporary boost from food inflation disappears.
There is uncertainty on whether food, rice prices will fall but on a year-on-year basis, the pace of increase likely to slow ahead.
Underlying inflation is still somewhat below 2%.
We have yet to sufficiently achieve our price target.
We will make a judgment call by looking at various indicators, in determining whether underlying inflation has hit our target.
Just looking at single indicator won’t be sufficient in grasping underlying inflation, which indicator to focus on could change gradually during course of time.
If food inflation is temporary, we shouldn’t respond with monetary policy.
If sustained rises in food prices lead to broader inflation, push up service prices, that could lead to wide-ranging inflation that could require raising interest rate.
If price risks overshoot our expectations, we will take stronger steps to adjust degree of monetary support.
Japan's economy is in state of inflation, when judging from recent movements in CPI.
Market reaction
At the time of press, the USD/JPY pair was up 0.07% on the day at 150.20.
(This story was corrected on March 26 at 01:25 GMT to say that the USD/JPY pair was up 0.07% on the day at 150.20, not the USD/CAD pair)
Bank of Japan FAQs
The Bank of Japan (BoJ) is the Japanese central bank, which sets monetary policy in the country. Its mandate is to issue banknotes and carry out currency and monetary control to ensure price stability, which means an inflation target of around 2%.
The Bank of Japan embarked in an ultra-loose monetary policy in 2013 in order to stimulate the economy and fuel inflation amid a low-inflationary environment. The bank’s policy is based on Quantitative and Qualitative Easing (QQE), or printing notes to buy assets such as government or corporate bonds to provide liquidity. In 2016, the bank doubled down on its strategy and further loosened policy by first introducing negative interest rates and then directly controlling the yield of its 10-year government bonds. In March 2024, the BoJ lifted interest rates, effectively retreating from the ultra-loose monetary policy stance.
The Bank’s massive stimulus caused the Yen to depreciate against its main currency peers. This process exacerbated in 2022 and 2023 due to an increasing policy divergence between the Bank of Japan and other main central banks, which opted to increase interest rates sharply to fight decades-high levels of inflation. The BoJ’s policy led to a widening differential with other currencies, dragging down the value of the Yen. This trend partly reversed in 2024, when the BoJ decided to abandon its ultra-loose policy stance.
A weaker Yen and the spike in global energy prices led to an increase in Japanese inflation, which exceeded the BoJ’s 2% target. The prospect of rising salaries in the country – a key element fuelling inflation – also contributed to the move.
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