BoJ’s Tamura: Inflation is on track, somewhat stronger than expected
The Bank of Japan (BoJ) board member Naoki Tamura said on Wednesday that inflation is on track or moving somewhat stronger than expected.
Key quotes
Inflation on track or moving somewhat stronger than expected.
Upward inflation risk had been elevated until March.
Japan’s wage momentum sufficiently heightening.
Consumer inflation data for April, May overshooting expectations.
While downward pressure exists, risk of Japan’s wage, price-setting behaviour reverting to low growth environment is small.
US tariff likely to weigh on Japan’s economy, prices but inflation to Tay near 2% until fiscal 2027.
Market-based services inflation exceeding 2%, rent and public service costs also gradually rising.
Rise in fresh food prices can no longer be described as temporary, must watch moves carefully.
Medium-, long-term inflation expectations heightening gradually.
Household, corporate inflation expectations are already around 2%.
Must be vigilant to risk of Japan’s inflation expectations overshooting further.
My basic stance is BOJ must raise rate in timely, appropriate fashion without being too quick or too late.
Don’t see 0.5% as barrier for BoJ rate hikes.
JGB market function has improved somewhat but remains low.
Voted against June decision to slow pace of bond buying taper next year on view BOJ should normalise bond holdings balance as soon as possible.
Must steadily normalise balance sheet, even though it may take time.
Market reaction
At the press time, the USD/JPY pair is down 0.49% on the day to trade at 151.94.
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.
Author
Lallalit Srijandorn
FXStreet
Lallalit Srijandorn is a Parisian at heart. She has lived in France since 2019 and now becomes a digital entrepreneur based in Paris and Bangkok.
