Bank of Japan Governor Kazuo Ueda: Steadily Advancing Toward 2% Inflation Target, Hints at Possible Further Rate Hikes Next Year

On December 25, according to Bloomberg, Bank of Japan Governor Kazuo Ueda stated that the central bank is steadily approaching its 2% inflation target and signaled that the BOJ may implement further rate hikes next year.

He believes that against the backdrop of a tightening labor market, significant changes in corporate wages and pricing behavior are making the achievement of the "2% price stability goal with wage growth" increasingly feasible, entering a phase of steady realization.

Ueda is confident in a virtuous cycle linking wages and prices in the Japanese economy and frankly admitted that the possibility of Japan's economy returning to a long-term balance between wages and prices has greatly diminished.

His remarks come after the BOJ raised its policy interest rate from 0.5% to 0.75% on December 19, marking the highest rate in nearly 30 years since September 1995.

Ueda's latest speech further explains the logic behind this rate hike decision. He stated that if economic and price trends meet expectations, monetary policy will continue to be adjusted, maintaining an appropriate pace to steadily achieve the inflation target, while also laying a foundation for long-term economic growth and business confidence.

Although the policy direction is clear, Ueda's comments also highlight the practical obstacles in the normalization process of monetary policy. The core issue lies in weak real wage growth, with nominal wage increases being overtaken by faster rising prices, leading to a continuous erosion of consumers' purchasing power and putting pressure on domestic consumption recovery.

This indicates that the "appropriate pace" Ueda refers to means the BOJ will adopt a cautious and gradual rate hike path, making flexible policy adjustments based on key data such as wages, consumption, and core inflation.

In summary, Ueda's statement marks the official end of Japan's nearly three-decade era of ultra-low interest rates, with monetary policy firmly moving toward normalization.

This process will not be aggressive but will be based on economic data, considering both domestic and external risks, following a prudent and forward-looking approach. The core goal is to achieve price stability while laying a solid foundation for Japan's long-term economic growth.

#日本央行 #Monetary Policy