BoJ’s Ueda sees wages remain under upward pressure

Lallalit Srijandorn FXStreet

Bank of Japan (BoJ) Governor Kazuo Ueda spoke at a panel held on Saturday during the Federal Reserve's annual conference in Jackson Hole, Wyoming.

Ueda stated that wages in his country are expected to remain under upward pressure due to a tight labor market. His comments signaled his optimism that conditions for another interest rate hike were falling into place, Reuters reported.

Key quotes

Despite Japan's dwindling working-age population, wage growth remained stagnant for decades due to entrenched deflationary expectations that discouraged companies from raising prices and pay.

Now, wages are rising and labor shortages have become one of our most pressing economic issues.

Notably, wage growth is spreading from large enterprises to small and medium enterprises.

Barring a major negative demand shock, the labor market is expected to remain tight and continue to exert upward pressure on wages.

Market reaction

At the time of press, the USD/JPY pair was up 0.13% on the day at 147.10.

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

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.

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