BoJ's Kazuo Ueda: Rate Hikes Would Be Appropriate if Inflation Grows as Expected

Remarks of Officials

Central Bank

Summary:

On September 24, Bank of Japan (BoJ) Governor Kazuo Ueda said that Japan's economic activity and price trends largely align with the BoJ's projections, noting a moderate rise in underlying inflation. He affirmed the BoJ's readiness to flexibly adjust monetary policies based on changes in economic activities and prices, adding that policy interest rates will be adjusted upward if inflation progresses as forecast.

On September 24, BoJ Governor Kazuo Ueda delivered a speech, with the main content as follows:

Real GDP for the April-June quarter of 2024 increased clearly. The economy has recovered moderately. Business sentiment has stayed at a favorable level and corporate profits have continued to increase. The Bank expects the virtuous cycle in the corporate sector to continue, in which high levels of profits lead to increased business fixed investment. Turning to the household sector, services consumption has been on a moderate uptrend. Private consumption is expected to increase moderately with rising income.

The year-on-year rate of change in the consumer price index (CPI) for all items excluding fresh food was 2.8 percent in August 2024, reflecting an increase in the overall price level. The rates of increase in the prices of food products and of other goods have declined. This is because cost-push pressure from the rise in import prices after the pandemic has eased. On the other hand, prices of services, in which labor costs account for a large share of costs, have continued on a moderate uptrend, showing that the impact of wage increases has intensified. Looking ahead, underlying inflation is likely to continue rising and in the second half of the projection period through fiscal 2026 to be at a level that is generally consistent with the price stability target of 2 percent.

Labor market developments show that the room for further increases in labor supply is becoming limited, partly reflecting demographic developments. Moreover, corporate profits have been favorable, and although labor costs have increased, the labor share has in fact fallen to a level not seen since the first half of the 1990s. Scheduled cash earnings have risen at a higher rate, reflecting the outcome of the annual spring labor-management wage negotiations, and summer bonuses have increased firmly in response to firms' strong business performance last year.

Japan's economic activity and prices had been generally in line with the Bank's outlook and that underlying inflation had risen moderately. In addition, the Bank took into account that import prices had risen again, reflecting the yen's depreciation since the beginning of this year, and that this had posed an upside risk to prices. In this situation, the Bank judged it appropriate to raise the policy interest rate and adjust the degree of monetary accommodation from the perspective of sustainable and stable achievement of the price stability target of 2 percent.

The Bank will conduct monetary policy as appropriate, aiming to achieve the price stability target of 2 percent in a sustainable and stable manner. In other words, if the outlook for economic activity and prices presented in the Outlook Report is realized, the Bank will accordingly raise the policy interest rate.

Kazuo Ueda's Speech

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BoJ's Kazuo Ueda: Rate Hikes Would Be Appropriate if Inflation Grows as Expected

Kazuo Ueda's Speech

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