BOJ Governor Ueda Says Underlying Inflation Is Close to 2% Target as Wage-Price Cycle Strengthens

Bank of Japan Governor Kazuo Ueda said on October 19 that Japan's underlying inflation is now "quite close" to the central bank's 2% price target, citing a positive cycle of rising wages and recovering prices that is becoming more firmly established. Ueda emphasized that anchoring core inflation around 2% is growing increasingly important, and that properly implementing monetary policy to reach that goal can also help stabilize the Japanese government bond market.

On bond policy, Ueda signaled no change to the BOJ's core tapering strategy, but said the bank would review market conditions, including the speed of long-term rate rises and signs of market instability, when deciding on any intervention. He added that if the short-term policy rate is raised appropriately, long-term rates are likely to rise steadily in tandem, while a failure to adjust policy properly could allow inflation risk concerns to push long-term rates higher on their own. Financial conditions, he noted, remain accommodative.

Ueda also addressed the role of government spending, saying fiscal expenditure supports demand and helps lift prices and wages, while spending that expands Japan's supply capacity could help tame inflation over time. Separately, Prime Minister Sanae Takaichi denied that she is driving a weak yen or pushing for higher interest rates, pushing back against market speculation about her influence on monetary and currency policy.