BoJ’s Ueda: Uncertainty regarding global economy rising, must scrutinize impact on business

Lallalit Srijandorn FXStreet

Bank of Japan Governor Kazuo Ueda said on Thursday that the Japanese central bank will continue to raise interest rates if underlying inflation converges toward its 2% inflation target as projected.

However, Ueda stated that the central bank will scrutinise "without pre-conception" whether its forecasts will materialise, while looking at various data that become available, per Reuters.

Key quotes

Uncertainty regarding the global economy heightening.
Must scrutinize impact on business confidence.
We will scrutinize without pre-conception whether our forecast will materialize looking at various data that will become available.
We will look at various data, particularly those related to how tariffs affect the economy.
Wants to focus on sustainably, stably achieving BOJ's 2% inflation target.

Market reaction

At the time of writing, USD/JPY is trading 0.11% higher on the day to trade at 142.77.

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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