Bank of Japan (BOJ) Governor Kazuo Ueda said the BOJ is gradually approaching its 2% inflation target and reaffirmed its stance of seeking further interest rate hikes if the economic outlook and prices develop as expected.
The statement on December 25 emphasized that the tightening labor market has altered wage and pricing behavior among businesses, thereby reinforcing wage-price dynamics and reducing the likelihood of a return to near-unchanged wages and prices.
- The BOJ says it is nearing its 2% price stability target and is considering raising interest rates.
- Ueda: Wage-price dynamics improve, risk of a return to near-stagnant wage-price conditions sharply reduced.
- Adjust policies at the appropriate pace to achieve inflation targets and support long-term growth.
The BOJ is nearing its 2% target and leaving open the possibility of raising interest rates.
Ueda said that if economic and price forecasts meet expectations, the BOJ will continue to adjust monetary policy, with a view toward further interest rate hikes.
In his speech, he assessed that the 2% price stabilization target coupled with wage growth is getting closer amid a tight labor market. Ueda said that corporate wage raising behavior and how businesses price their wages have changed significantly in recent years, reinforcing the inflation outlook.
He emphasized that adjusting policy at the right pace could help the BOJ smoothly achieve its inflation target, while also fostering long-term growth and creating a foundation for businesses to increase their confidence in their operations.
Stronger wage-price dynamics reduce the risk of a return to wage-price stagnation.
Ueda expressed confidence in the wage-price dynamics in Japan and suggested that the likelihood of a return to near-stable wage and price levels has significantly decreased.
He described this state as a so-called zero-normal state, meaning wages and prices remained almost unchanged. According to Ueda, the change in wage and price behavior is reducing the probability of the economy falling back into a prolonged period of low inflation.
The policy message indicates that the BOJ will continue to rely on economic data and price forecasts to determine its next steps, aiming to achieve 2% growth while maintaining a foundation for sustainable growth.
