BoJ’s Ueda elaborates on inflation and wages, hinting at future policy shifts

During his post-meeting news conference, BoJ Governor Kazuo Ueda confirmed that the economy is aligning with the central bank’s inflation projections, adding “our core-core inflation forecast is at 1.9%, very close to our 2% target”. This closeness, he explained, significantly contributes to BoJ’s growing confidence in sustainably achieving its price target.

However, Ueda acknowledged the challenges in quantifying the exact progress towards this goal. He pointed out that recent movements in service prices have been influenced by several one-off factors and that consumption weakness is impacting these prices. BoJ is analyzing these trends by separating such factors, and Ueda believes that, despite these complexities, “service inflation is gradually accelerating as a trend.”

Ueda also addressed the timing of monetary policy adjustments in relation to wage negotiations. He suggested that waiting for the outcome of wage talks across all firms, including smaller ones, would be impractical due to the extended timeframe this would require. BoJ, therefore, intends to use various economic indicators and data from hearings to predict wage trends. Ueda emphasized the influence of larger firms’ wage negotiations on smaller firms and the availability of data on smaller firms’ profit outlooks as potential early indicators.