TOKYO, Dec 25 : Bank of Japan Governor Kazuo Ueda said on Thursday the nation’s underlying inflation is accelerating gradually and steadily approaching the central bank’s 2 per cent target, reiterating the central bank’s readiness to continue raising interest rates.
He also preached the benefits of further rate rises, saying that adjusting the degree of monetary support will allow Japan to smoothly achieve 2 per cent inflation and long-term economic growth.
“Given that real interest rates are very low, the BOJ will continue to raise interest rates in accordance with improvements in the economy and prices,” if its baseline scenario is realised, Ueda said in a speech to Japan’s business lobby Keidanren.
The remarks came in the wake of the BOJ’s decision last week to raise interest rates to a 30-year high of 0.75 per cent, another landmark step in ending decades of huge monetary stimulus and near-zero borrowing costs.
Ueda said last week’s decision reflected the central bank’s growing conviction that economic risks from U.S. tariffs have diminished, and would prod firms to keep hiking pay next year.
Barring a major negative shock to the economy, labour market conditions will remain tight and put upward pressure on wages as structural changes in the market – such as a declining working-age population – are irreversible, he said.
Companies are passing on rising labour and raw-material costs not just for food but other goods and services, a sign Japan is seeing a mechanism take hold in which wages and inflation rise in tandem, Ueda said.
“Japan’s underlying inflation has followed a moderate uptrend as a whole,” Ueda said.
“Amid tightening labour market conditions, firms’ wage- and price-setting behaviour has changed significantly in recent years. Achievement of our 2 per cent inflation target, accompanied by wage increases, is steadily approaching,” he added.
Investors have been focusing on whether Ueda would change his tone on the policy outlook, after his remarks at last week’s post-meeting news conference were taken as dovish by currency market players and led to yen falls.
A weak yen has become a headache for policymakers as it pushes up import costs and broader inflation, thereby hurting consumption.
While the BOJ is widely expected to keep rates steady at its next policy meeting on January 22-23, a quarterly update of its growth and inflation forecasts may offer hints on the board’s views on upward price pressures from the weak yen, analysts say.
