Bank of Japan (BoJ) Governor Kazuo Ueda addressed the media in a post-policy meeting press conference on Friday, outlining the central bank‘s stance on monetary policy and its view on the country’s economic trajectory. Ueda emphasized the BoJ’s readiness to adjust the degree of monetary easing should the underlying inflation rate see an uptick, while also affirming the maintenance of easy financial conditions in the near term.
Following the April meeting, the BoJ opted to keep the interest rate steady at 0%, reflecting its cautious approach amidst evolving economic conditions. Ueda acknowledged Japan’s moderate economic recovery, tempered by pockets of weakness, and underscored the necessity of closely monitoring financial and foreign exchange (FX) market movements for their potential impact on the economy and prices.
Ueda stressed that future monetary policy decisions would hinge on a comprehensive assessment of economic, price, and financial conditions, with consideration given to potential risks and the achievement of the 2% inflation target. He clarified that while monetary policy does not directly target FX rates, fluctuations in the currency market could influence inflation dynamics and warrant policy adjustments.
Addressing concerns over inflation outlook, Ueda attributed the upgrade in the fiscal year 2024 inflation forecast primarily to higher crude oil prices, with the weak yen exerting a supplementary impact. He expressed cautious optimism regarding the likelihood of achieving the 2% inflation target, noting a gradual rise in prospects. However, he indicated a foreseeable reduction in Japanese Government Bond (JGB) purchases, albeit as a measure not intended as a proactive monetary policy tool.
Ueda highlighted the importance of evaluating underlying inflation trends, particularly in relation to service prices and yen-induced import price hikes, as well as corporate wage and price-setting behaviors. Despite the absence of opposition to maintaining JGB purchases at the current level during the meeting, he hinted at future deliberations regarding the reduction of JGB buying, subject to evaluation by the policy board.
The market reacted to Ueda’s remarks, with the USD/JPY pair rallying to test 156.00, marking a 0.25% increase on the day to 156.03, indicating the sensitivity of currency markets to BoJ’s monetary policy communications.
In conclusion, Governor Ueda’s statements provide insights into the BoJ’s nuanced approach to monetary policy amid evolving economic conditions, underlining the central bank’s commitment to fostering stable economic growth and achieving its inflation targets.
