Bank of Japan Head Says Bank Won’t Stick to 2% Inflation Target

The Yomiuri Shimbun

6:00 JST, May 27, 2023

The Bank of Japan will not stick to its 2% inflation target and is ready to modify or change policies in a flexible manner, the bank’s governor Kazuo Ueda suggested Thursday.

In an interview with The Yomiuri Shimbun and other media outlets on the day, Ueda said the central bank would continue with large-scale monetary easing, adding, “The bank will change policies if there are expectations for wage increases or inflation, even though price rises are caused by higher resource costs.”

On the 2% inflation target Ueda said, “Judging whether the inflation rate is sustainable and stable is more important than focusing on subtle differences in actual results.” Japan’s consumer price inflation has already exceeded 2% due to higher prices for resources. The BOJ has kept its monetary easing measures in place citing as a reason the instability of the current inflation figure. However, Ueda indicated the possibility that the bank would tighten its monetary policy in a flexible manner.

The impact of higher resource prices will lessen in the second half of fiscal 2023 and beyond. The central bank thus expects inflation to slow and prices to increase again against a backdrop of strong consumption and investment. As for when a reversal in prices might start, Ueda suggested that future economic data would be key, saying, “The timing for that could be sooner, or later, than expected.”

Ueda assumed his post in April. At a monetary policy meeting that month, the central bank decided to continue with its current large-scale monetary easing and adopted a policy aimed at price increases accompanied by wage rises. Explaining the reason for the policy, Ueda said in the interview, “We made it clear that wages would rise naturally if prices increase in a sustainable and stable manner.”

Ueda added that the direction of the U.S. economy “will have a significant impact” on Japan’s economy. He also expressed the view that inflation in the United States could be curbed by Federal Reserve Board interest rate hikes and conjectured that the U.S. economy might enter a recession, or that interest rates could remain high for an extended period.