BoJ’s Ueda: Japan’s real interest rate remains very low
Bank of Japan Governor Kazuo Ueda said on Thursday that Japan's real interest rates remain very low. Ueda further stated that the central bank will increase the rate if the economic outlook is achieved.
Key quotes
- Japan’s economy is recovering moderately, albeit with some weak signs.
- Japan’s economy, prices moving roughly in line with our forecasts, but must be vigilant to heightening uncertainty, including from each country’s trade policy.
- Japan’s financial system maintains stability as a whole.
- Japan’s real interest rates remain very low.
- BOJ is expected to keep raising interest rates if the economy and prices move in line with projections made in our quarterly report.
- We will scrutinise at each policy meeting without any preset idea whether the economy is moving in line with our forecasts.
- US tariffs affect Japan’s economy through various channels.
- Higher-than-expected US tariffs raised global economic uncertainties, caused market turmoil.
- US tariffs could exert downward pressure on global, domestic economy, while can’t tell right now which way they would impact prices.
- Frequently have one-on-one meetings with policymakers from other countries.
- Plan to exchange views with US Fed chairman and other policymakers at next week’s meetings.
- Will assess US policies, wage, price trend at next BoJ policy meeting.
- Prolonged food inflation could change inflation expectations and result in real inflation, so we’ll closely monitor the situation using data and hearings.
- We’re focused on underlying inflation as our goal is to achieve 2% inflation in a stably and durably.
- Underlying inflation gradually approaching 2% with labor situation being tight, inflation expectations rising modestly, but uncertainties are increasing due to US tariff policies.
- Have adjusted the degree of monetary easing appropriately so far, will continue to made policy decisions appropriately to achieve 2% inflation target.
- Keeping low rates even when underlying inflation is accelerating could result in situation where we would be forced to hike rapidly.
- FX rates should move stably reflecting fundamentals.
Market reaction
At the time of writing, USD/JPY is trading 0.47% higher on the day to trade at 142.57.
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.
