Japan's Ueda: "Higher Possibility of Achieving Inflation Target"... Building Justification for Exit Strategy

"Likelihood of Achieving Inflation Target Increases
Exact Timing of Achievement Unpredictable"
Market Interprets as Dovish Message
Attempt to Gradually Exit Easing Policy

Kazuo Ueda, Governor of the Bank of Japan (BOJ), expressed a hopeful outlook on escaping deflation, stating that "the possibility of Japan's inflation rate continuously maintaining a 2% increase is gradually becoming higher."

Kazuo Ueda, Governor of the Bank of Japan
[Photo by Reuters]

Governor Ueda made this remark during a speech at a regional business leaders meeting held in Nagoya, Japan, on the 6th, saying, "The accuracy of achieving the inflation target is gradually improving."

Regarding domestic inflation trends in Japan, he forecasted, "The virtuous cycle where wage increases lead to price rises is strengthening, and the underlying consumer price inflation rate will slowly rise to the 2% range." In September, Japan's Consumer Price Index (CPI) rose 2.8% year-on-year. Japan's inflation rate has exceeded the BOJ's 2% inflation target for 18 consecutive months since April last year.

The market interprets Governor Ueda's remarks as signaling a shift in monetary policy stance. Previously, at last month's monetary policy meeting, Ueda had responded that it was not possible to expect achieving the inflation target at the current time. Bloomberg analyzed that his positive stance within a week indicates that the Japanese economy is gradually moving toward the inflation target.

There is also analysis that Governor Ueda is gradually building a rationale to end the easing policy. Bloomberg explained, "Governor Ueda's remarks are shifting toward showing more confidence in achieving the inflation target," adding, "This message will pave the way to normalize Japan's financial policy when the time comes."

However, Governor Ueda expressed a cautious stance, saying that he cannot yet be certain of achieving the target in order to minimize shocks to the market. He emphasized again, "Although the possibility of achieving the inflation target is gradually increasing, we have not yet reached a situation where the timing can be predicted accurately enough at this point," and "Next year's spring wage negotiations will be an important point to watch." He also expressed concerns about the high economic uncertainty due to geopolitical risks surrounding Japan, such as the Ukraine war and conflicts in the Middle East.

Meanwhile, according to a Bloomberg survey conducted ahead of last month's BOJ monetary policy meeting, 70% of analysts predicted that the BOJ would shift to a tightening stance before April next year.

This content was produced with the assistance of AI translation services.