The Governor of the Bank of Japan Kazuo Ueda said on Tuesday that although the Japanese central bank is now closer to the purpose of inflation than in the last few decades, there is no boy.
Key quotes
While many of my colleagues from G7 looked relieved to progress in the fight against inflation, they also recognized recent challenges, such as increased uncertainty of commercial policy and dealing with more recurrent shocks on the supply side.
In Japan, we are still struggling with a long -term challenge of achieving our 2% inflation in a balanced manner.
Although we are now closer to our target inflation than at any time in the last few decades, we are not there.
Inflation in Japan has increased again, driven primarily by an escalate in food prices, in particular rice prices.
The actual indicator of Japan’s policy remains deeply negative.
In the delicate of growing uncertainty, especially those related to commercial policy, we have recently changed our economic and inflation perspectives.
But we still expect that the inflation underlying will gradually reach 2% in the second half of our horizon of the forecast.
In our basic scenario there are both positive risk, down.
Risk for business activity, prices are skewed for tax years 2025 and 2026.
To the extent that incoming data allow us to obtain greater confidence in our output script as the escalate in business and prices increases, if necessary, we will adapt the degree of monetary relief to ensure the achievement of a sustainable 2% target inflation.
Considering extremely high uncertainties, it is essential that we assess whether the prospects will be realized, without any prejudices.
Market reaction
At the time of writing, the USD/JPY pair trads 0.32% lower on 142.38.
Bank of Japan Faq
Bank Japan (Bij) is a Japanese central bank that establishes monetary policy in the country. His mandate consists in issuing banknotes and transferring currency control and monetary control to ensure price stability, which means the purpose of inflation of about 2%.
In 2013, the Bank of Japan began an ultra-losed monetary policy to stimulate the economy and fuel inflation in a low inflationary environment. The bank’s policy is based on quantitative and qualitative relaxation (QQE) or printing banknotes to buy assets such as government or corporate bonds to ensure liquidity. In 2016, the bank doubled its strategy and further loosened the policy, first introducing negative interest rates, and then directly controlling the profitability of 10-year government bonds. In March 2024, the boat raised interest rates, effectively withdrawing from the ultra-losing monetary policy attitude.
The huge stimulus of the bank meant that Jen was depreciated against the main currency peers. This process tightened in 2022 and 2023 due to the growing discrepancy of politics between the Bank of Japan and other main central banks, which decided to escalate interest rates to fight high inflation. The BOJ policy led to the difference between the difference with other currencies, reducing the value of Jen. This trend partly turned in 2024, when the Boj decided to abandon his ultra-folk attitude of politics.
The weaker yen and the escalate in global energy prices led to an escalate in Japanese inflation, which exceeded 2% of the GOP. The prospect of increasing remuneration in the country – a key element driving inflation – also contributed to the move.
