BOJ Governor: "Achieving a Continuous 2% Inflation Rate is the Goal"

Speech at the '2024 BOJ-IMES Conference'

Kazuo Ueda, Governor of the Bank of Japan (BOJ), stated in a speech on the 27th that the goal is to sustainably achieve 2% inflation. As Japanese household consumption contracts due to the super weak yen, calls for the BOJ to raise its policy rate earlier are gaining momentum.

[Image source=Yonhap News]

In his speech at the '2024 BOJ-IMES Conference' hosted by the BOJ and the Institute for Monetary and Economic Studies (IMES) in Tokyo, Governor Ueda said, "We aim to induce inflation in a sustainable and stable manner," adding, "The BOJ has made progress in moving inflation away from zero and raising expectations, but it is necessary to fix this in place."

He emphasized, "To address this, interest rates must be decided, which is a difficult task for any (major) central bank," and added, "It is especially so in Japan."

In fact, Japan is in a situation where it cannot move either way in monetary and exchange rate policy due to prolonged ultra-low interest rates and a weak yen lasting over 10 years. Even though the BOJ raised the short-term interest rate from -0.1% per annum to 0?0.1% per annum in March, the yen-dollar exchange rate surpassed 160 yen per dollar for the first time in 34 years.

Japan’s preliminary real gross domestic product (GDP) for the first quarter decreased by 0.5% quarter-on-quarter. The market interprets this as a consequence of weakened consumption due to the weak yen. Japan’s consumer price index (excluding fresh food) in April rose 2.2% year-on-year. The inflation rate has exceeded the BOJ’s target (2%) for 25 consecutive months.

Governor Ueda said, "Like other major central banks, we will carefully decide monetary policy," but stressed, "Without significant interest rate changes, it becomes a considerable obstacle to assessing the economy’s response to interest rate changes."

Voices calling for the BOJ to raise interest rates earlier are growing in the market. Nomura Securities forecast that the BOJ could raise the policy rate by 0.2 percentage points as early as July. They projected the year-end yen-dollar exchange rate to be 143 yen.