Bank of Japan (BOJ) Governor, Kazuo Ueda, stated on Thursday that Japan’s underlying inflation continues to accelerate and is steadily nearing the central bank’s 2% target, reaffirming BOJ’s willingness to further tighten monetary policy.
Ueda emphasized that moving forward with additional rate hikes would help Japan attain its 2% inflation goal and lay the groundwork for sustained long-term economic growth.
These comments follow the BOJ’s recent decision to raise its policy rate to 0.75%, the highest level in 30 years—a significant milestone in winding down decades of ultra-loose monetary policy and exceptionally low borrowing costs.
According to Ueda, last week’s policy adjustment was driven by greater confidence within the central bank that downside risks from U.S. tariffs have lessened and that Japanese companies are likely to continue boosting wages into next year.
Unless a significant economic shock occurs, Ueda said, Japan’s labor market is expected to remain persistently tight, driven by an aging workforce and a shrinking pool of working-age individuals—structural shifts that are unlikely to reverse.
He observed that companies are now passing higher costs from labor and materials onto consumers across a broad range of goods and services, evidence that a cycle of rising wages and prices is taking root.
Investors have closely watched Ueda’s tone on policy direction, especially after his dovish comments at last week’s press conference prompted a decline in the yen. The weaker currency now poses challenges for policymakers as it lifts import costs and overall inflation, squeezing household consumption.
Although market consensus suggests the BOJ will hold interest rates steady at its next meeting on January 22-23, analysts forecasted that the accompanying quarterly update on growth and inflation may offer further insight into the BOJ’s assessment of inflationary pressures stemming from the weaker yen.
