Bank of Japan Governor Kazuo Ueda stated on Tuesday that the central bank would consider further reducing monetary stimulus if the country’s underlying inflation rate approaches the 2 percent target, as anticipated by Japanese news agency Kyodo News.
During a parliamentary session, Ueda explained that the BOJ would assess upcoming data to verify the strength of wage growth, aligned with the outcomes of labour-management negotiations this spring, and whether there will be an increase in service prices to achieve stable inflation.
Ueda expressed during the upper house session, “If basic inflation gradually moves toward 2 percent as we expect, it will become possible to reduce the degree of monetary easing a little bit more.”
In March, the Japanese central bank terminated its negative rate policy and yield cap programme, encouraged by robust wage hikes that increased the likelihood of achieving the 2 percent inflation target in a “stable and sustainable manner.”
While the underlying inflation rate, excluding transitory factors, is presently “slightly below” 2 percent, Ueda emphasised the necessity for financial conditions to remain “accommodative for the time being.”
However, he acknowledged that the probability of reaching the target has significantly increased, stating, “If the positive cycle (of pay and price hikes) strengthens more than we have seen, then it will be possible to reduce the degree of monetary easing at a faster pace.”
The BOJ anticipates core consumer prices, excluding volatile fresh food items, to increase by 2.4 percent in fiscal 2024 through next March and then by 1.8 percent in fiscal 2025.
Following its first interest rate hike in 17 years, financial markets are keen to discern the extent and pace at which the dovish central bank will continue raising rates.
