Bank of Japan (BoJ) Governor Kazuo Ueda said Tuesday that Japan is now closer than ever in recent decades to achieving its 2% inflation target, but emphasized that the central bank has not yet fully reached that goal.
Speaking amid a complex global economic backdrop, Ueda acknowledged that while his G7 counterparts expressed cautious optimism over progress in curbing inflation, they also recognized emerging headwinds—namely rising trade policy uncertainty and more frequent supply-side shocks.
“In Japan, we are still grappling with the longstanding challenge of achieving our 2% inflation target in a sustainable manner,” Ueda stated. “While we are now closer to our inflation target than at any time during the last few decades, we are not quite there.”
He noted that inflation in Japan has seen a renewed uptick, driven largely by food prices, particularly rice. Despite this, Japan’s real policy rate remains deeply negative, highlighting the ongoing need for accommodative monetary policy.
Amid growing uncertainties, especially those linked to global trade, the BoJ has revised down its economic and inflation forecasts. Nevertheless, Ueda maintained that underlying inflation is still expected to gradually approach the 2% target in the latter half of the forecast horizon.
“There are both upside and downside risks to our baseline scenario,” Ueda cautioned, adding that for fiscal years 2025 and 2026, the risks to economic activity and prices remain skewed to the downside.
He reiterated that policy adjustments will depend on the evolution of economic data: “To the extent that incoming data allows us to gain more confidence in our baseline scenario, as economic activity and prices improve, we will adjust the degree of monetary easing as needed.”
Ueda underscored the importance of flexibility in policy-making, noting that given the “extremely high uncertainties,” it is vital for the BoJ to assess the economic outlook with an open mind and without preconceived assumptions.
Market Reaction:
Following Ueda’s remarks, the Japanese Yen strengthened modestly, with the USD/JPY pair trading 0.32% lower at 142.38 at the time of writing.
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