BoJ’s Ueda: Risk of BoJ being behind the curve on inflation is not that big but warrants attention
Bank of Japan (BoJ) Governor Kazuo Ueda said on Friday that the risk of the BoJ being behind the curve on inflation is not that big but warrants attention. Ueda added that the risk of delay in US economic data from the US government shutdown is a serious problem, but we can extract information from other similar data.
Key quotes
Uncertainty on how US tariffs affect global, Japan, US economies remains quite high.
Would be too late to wait until all hard data becomes available to gauge US economic outlook.
We will scrutinise as much data as needed to make our policy decision, which includes not only hard data but corporate surveys.
We lack enough data to determine next year's wage outlook as that will depend on how US Economic developments affect Japan's corporate profits.
Risk of BoJ being behind the curve on inflation is not that big but warrants attention.
Risk of delay in US economic data from US government shutdown is a serious problem but we can extract information from other similar data.
Would like to get information from policymakers, financial institutions on state of US economy during IMF meetings later this month.
As for risk to US Economy, we can say that except for jobs data US economy seems to be on firm note.
Chance of US Economy overshooting average forecasts made by economists is not zero.
There is significant uncertainty regarding level of Japan's neutral rate of interest.
BoJ will communicate closely with government whoever becomes next premier, will guide monetary policy based on economic and price forecasts to sustainably achieve price target.
Market reaction
As of writing, the USD/JPY pair was up 0.27% on the day at 147.65.
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.
