BOJ/Ueda: Confidence Grows in Achieving Price Stability Target

Forex - The Bank of Japan (BOJ) Governor Kazuo Ueda expressed an increased confidence that the stable inflation target of 2%, supported by wage growth, is attainable, but he refrained from implying how close the bank is to raising interest rates again.

In a speech to members of Japan's largest business lobby, Keidanren, Ueda stated, “The bank sees that it is now perceivable to sustainably and stably reach the 2% price stability target. What will 2025 look like? Our forecast is that the virtuous cycle will intensify further and that the Japanese economy will approach a sustainable and stable 2% inflation accompanied by wage increases.”

Economists and investors expect the central bank to raise interest rates soon, but there are differing views on the timing. While some expect an increase at the BOJ's next meeting in January, others believe the bank will wait until March, when preliminary results of Japan's annual wage negotiations will be announced.

The BOJ Governor mentioned that since the economy is still in the process of transitioning to stable 2% inflation, the bank will maintain supportive monetary conditions by keeping the policy interest rate below what it currently considers a neutral level for the time being.

However, maintaining easy monetary conditions for an extended period raises the risk of inflation exceeding the 2% target, which could force the bank to rapidly raise interest rates. In such a scenario, companies' ability to invest and increase wages would be impaired, thereby hindering Japan’s growth.