BoJ Ueda highlights shifting dynamics in Japan’s inflation drivers

BoJ Governor Kazuo Ueda, in a speech today, delineated the two forces in play regarding Japan’s inflationary pressures: “The first force, led by import prices, has seen its year-on-year rate of increase decelerate,” and he anticipates this force will “gradually wane.”

As for the second force, Ueda suggested it is tied to changes in firms’ wage and price-setting behaviors, with the potential to strengthen as “wage growth accelerates owing to economic improvement, leading to moderate inflation.”

However, he cautioned that the spread and permanence of these behaviors are uncertain, adding, “Changes have started to be seen in some aspects of firms’ wage- and price-setting behavior, but there are extremely high uncertainties as to whether these changes will become widespread.”

Addressing Japan’s broader economic outlook, Ueda described the nation as being in a “critical phase” concerning the interplay between wages and prices. Stressing the importance of fostering nascent economic shifts, he emphasized the need “to carefully nurture the buds of change in the economy.”

Ueda reiterated BoJ’s stance on monetary policy, stating the need “to patiently continue with monetary easing under the framework of yield curve control.”

Full speech of BoJ Ueda here.