In a speech today, BoJ Deputy Governor Shinichi Uchida articulated a scenario where, despite an end to the negative interest rate policy, rapid interest rate hikes remain unlikely.
“Even if the Bank were to terminate the negative interest rate policy, it is hard to imagine a path in which it would then keep raising the interest rate rapidly,” he stated, suggesting a gradual adjustment process, while financial conditions wild remain “accommodative.
Uchida projected gradual increase in underlying inflation toward 2 percent target through fiscal 2025. This forecast anticipates core CPI (all items less fresh food) at 2.8% for fiscal 2023, with a subsequent moderation to 2.4% in fiscal 2024 and 1.8% in fiscal 2025.
Theses projections are based on the outlook that “while the pass-through of cost increases will continue to wane, prices such as of services will rise, accompanied by wage increases.”
To achieve this economic outlook, Uchida emphasized, the virtuous cycle needs to intensify in both directions, from prices to wages and from wages to prices.”
