Bank of Japan Governor Kazuo Ueda said at the House of Councillors Budget Committee that underlying inflation was “quite close” to the 2% level, and reiterated that there was no change to the basic policy of reducing government bond purchases.
BOJ Governor Kazuo Ueda explained that Japan’s underlying inflation rate has been gradually rising and is now quite close to the BOJ’s 2% target. He said that firmly anchoring inflation around that level on a sustained basis is an urgent task, and emphasized that there was no change to the basic policy of reducing the scale of government bond purchases.
Inflationary pressure was broken down into two factors: cost-push inflation driven by higher energy and raw-material costs, and demand-led inflation encouraged by strong global demand for AI. It was noted that the cycle of rising wages and prices would push up prices through an economic recovery and tight labor market.
It was stated that fiscal policy stimulates demand and pushes up prices and wages, but could also help contain inflation if it has the effect of increasing supply capacity over the long term. Regarding the relationship between monetary policy and the bond market, it was explained that achieving the 2% target would also contribute to stabilizing long-term interest rates.
Markets will closely monitor the pace of reductions in government bond purchases and the wording of the statement from the policy meeting later this month. The risk of intervention could rise depending on long-term interest-rate movements, and whether this becomes a turning point for an additional rate hike before year-end is the focus of the outlook.