BoJ Governor Ueda: Aware that long-term interest rates are rising rapidly

Agustin Wazne FXStreet

Bank of Japan (BoJ) Governor Kazuo Ueda said that they need to closely monitor signs of upward price pressure and that he will take appropriate monetary policy to achieve the BoJ inflation target, after a G7 finance chiefs and central bankers' meeting in Paris on Tuesday.

Key quotes:

G7 central banks agreed that rising energy prices are affecting inflation expectations, economy, financial markets.

Latest GDP data are mostly in line with our forecast, Middle East situation has begun to impact.

Need to closely monitor signs on upward price pressure.

Aware that long-term interest rates are rising rapidly.

When asked about BoJ tapering plans: will assess market situation, functionality.

Will take appropriate monetary policy to achieve inflation target.

Will closely work with the government on JGB market situation.”

Bank of Japan FAQs

What is the Bank of Japan?

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%.

What has been the Bank of Japan’s policy?

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.

How do Bank of Japan’s decisions influence the Japanese Yen?

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.

Why did the Bank of Japan decide to start unwinding its ultra-loose policy?

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

Agustin Wazne

FXStreet

Agustin Wazne joined FXStreet as a Junior News Editor, focusing on Commodities and covering Majors.

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