BOJ governor Ueda says will conduct monetary policy in a manner so as to not fall behind the curve
- Will hold careful discussions at next meeting with risks of inflation overshooting more than in the past
- To analyse risks of Middle East situation, AI demand, FX developments and their impact at next meeting
- It’s not that we can’t make policy changes until the data shows complete stabilisation of inflation at 2% level
- We will still conduct monetary policy in a manner so as to ensure we don’t fall behind the curve
- Underlying inflation is approaching the 2% level, so we can’t ignore the risks of it overshooting that
- Lower sales tax rate is a positive for real income developments
- Important for government to ensure markets’ trust in long-term fiscal soundness
- Not appropriate to comment beforehand on increasing bond purchases
The BOJ approach has not changed whatsoever for the most part. They still want to keep the door open for another rate hike but the timing and conditions are making it tough for them.
Call it unlucky or perhaps just a case of bad timing. However, they have had ample of opportunities to dig themselves out of this mess in the past two years. Instead, they wanted to play it slow and took a bit too long before finding themselves in the current predicament.
At first, Takaichi’s appointment as prime minister was a bit of a setback already and they had to rush to move right before the end of last year. Then, there was the surprise curveball from the US-Iran conflict as they wanted to wait until after the spring wage negotiations.
Eventually, that still allowed them to move again but the trouble and messiness just continues now into 2H 2026.
Even as price pressures are increasing, there is now the bad mix of cost-push inflation in the picture. Adding to that is downside risks to the economy as energy prices continue to hold higher as the Middle East conflict rages on.
This article was written by Justin Low at investinglive.com.