50% Off! Beat the market in 2025 with InvestingProCLAIM SALE

BOJ's Ueda expects further progress in hitting price target next year

Published 12/24/2024, 11:59 PM
Updated 12/25/2024, 01:05 AM
© Reuters. FILE PHOTO: Bank of Japan Governor Kazuo Ueda attends a press conference after a BOJ policy meeting in Tokyo, Japan, December 19, 2024. REUTERS/Kim Kyung-Hoon/File Photo

By Leika Kihara

TOKYO (Reuters) -The Bank of Japan expects the economy to move closer to sustainably achieving the central bank's 2% inflation target next year, Governor Kazuo Ueda said on Wednesday, suggesting the timing of its next interest rate increase was nearing.

But he warned of the need to scrutinise the fallout from "high uncertainties" surrounding overseas economies, especially the economic policies of the incoming U.S. administration of President-elect Donald Trump.

The outlook for next year's wage negotiations between Japanese firms and unions is also key, Ueda said in explaining factors the central bank would scrutinise in setting policy.

"The timing and pace of adjusting the degree of monetary accommodation will depend on developments in economic activity and prices as well as financial conditions going forward," Ueda said in a speech to business lobby Keidanren.

The remarks underscore the BOJ's resolve to keep pushing up short-term rates from the current 0.25% next year. Most analysts expect the bank to raise rates to 0.5% in January or March.

The BOJ ended negative interest rates in March and raised its short-term policy target to 0.25% in July. It has signalled a readiness to hike again if wages and prices move as projected.

Consumption has shown signs of improvement as intensifying labour shortages push up wages, Ueda said, stressing progress Japan has made in durably achieving the BOJ's price target after years of aggressive monetary stimulus.

In the current phase of transition towards achieving 2% inflation in a sustainable manner, the BOJ will support the economy by keeping its policy rate lower that levels neutral to the economy, Ueda said.

But if the economy continues to improve, the BOJ will raise rates, as maintaining excessive monetary support for too long could heighten inflationary risks, he said.

"Our projection is that the virtuous cycle will further intensify and that Japan's economy will move closer to sustainable and stable 2% inflation, accompanied by wage increases," Ueda said on the prospects for 2025.

"Prices of a wide range of goods and services have begun to rise moderately recently, reflecting increasing wages. Against this background, we judge that sustainable and stable achievement of our 2% inflation target is now within sight."

The speech followed remarks Ueda made last week calling for the need to await more information on Trump's policy stance and domestic wage developments before hiking borrowing costs again.

Those remarks at a press conference after the BOJ kept rates steady, were interpreted by investors as dovish, helping push the yen to its weakest since July and triggering warnings by Japanese authorities.

Japan must see wages rise at levels consistent with 2% inflation, Ueda said on Wednesday, adding that high profits achieved by big firms must be distributed to smaller firms and households for the economy to durably meet the BOJ's inflation target.

"We will examine how wage hikes by small and midsize firms will evolve, using our network of branches," Ueda said.

© Reuters. FILE PHOTO: Bank of Japan Governor Kazuo Ueda attends a press conference after a BOJ policy meeting in Tokyo, Japan, December 19, 2024. REUTERS/Kim Kyung-Hoon/File Photo

The BOJ will release its quarterly report on regional economic conditions on Jan. 9, which will likely include its view on whether wage hikes are spreading nationwide.

The report will likely be among factors the BOJ's board will scrutinise for its next policy decision on Jan. 24.

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.