Bank of Japan Governor Kazuo Ueda said it is becoming more important to anchor underlying inflation around the bank's 2% target, warning that the war on Iran, AI-related demand and a weak yen could all push prices too high. The remarks, delivered ahead of the BOJ's October 29-30 policy meeting, mark a shift from waiting for inflation to reach target toward keeping it anchored there.
Ueda told an annual meeting of securities firms on Tuesday that economic and price developments were moving in line with the BOJ's baseline scenario, even after last month's interest rate hike. According to Reuters: "Financial conditions remain accommodative and continue to underpin economic activity", he said, adding that the BOJ will keep raising borrowing costs to adjust the degree of monetary support.
Ueda sharpens his language on inflation
Ueda said it has become more important than before to ensure underlying inflation stays anchored around 2%, so that the risk of an overshoot does not damage the economy. In its statement announcing September's rate hike, the BOJ had said only that doing so was important.
October outlook could formalize the shift
Reuters sources cited by ActionForex say the central bank may use its October 29-30 Outlook Report to signal underlying inflation has roughly reached the 2% target. That would mark a change from the July report, which still projected target-consistent underlying inflation sometime between October 2026 and March 2028. However, officials reportedly prefer to assess how September's increase is affecting financial conditions before moving again, so an October hike is not the central message.
Price pressures build on several fronts
Rising raw material costs are pushing up wholesale inflation, with price pressures spreading to consumer prices, Ueda said, and long-term inflation expectations continue to rise. The BOJ's tankan survey also pointed to solid business sentiment, consistent with a moderately recovering economy. Ueda again flagged the Iran conflict, strong AI-related demand and yen weakness as risks that could push underlying inflation past target.
The BOJ raised its key rate to a 31-year high last month, and Ueda's latest remarks keep the medium-term tightening bias intact even if October brings a pause.
Sources: ActionForex, Investing.com (Reuters)
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