📖 Your Q2 Earnings Guide: Discover the Stocks ProPicks AI Highlights to Jump Post-EarningsRead more

BOJ's Ueda signals scope to reduce monetary stimulus

Published 04/09/2024, 12:19 AM
Updated 04/09/2024, 04:10 AM
© Reuters. Bank of Japan Governor Kazuo Ueda gestures as he speaks during a press conference after a policy meeting at BOJ headquarters, in Tokyo, Japan March 19, 2024. REUTERS/Kim Kyung-Hoon/File Photo

By Leika Kihara

TOKYO (Reuters) -Bank of Japan Governor Kazuo Ueda said the central bank must consider whittling down stimulus further if inflation continues to accelerate, signalling the chance of another interest rate hike later this year in line with market bets.

Speaking in parliament, Ueda said the central bank must maintain ultra-loose monetary policy for the time being since trend inflation has yet to reach its 2% target.

But he said solid pay hikes seen so far in this year's wage negotiations will likely boost household income and consumption, offering an upbeat view on Japan's economic outlook.

Under the BOJ's baseline scenario, trend inflation will converge towards 2% in the next 1-1/2 to two years, Ueda said.

"If economic and price conditions move in line with our current projections, trend inflation will gradually accelerate. If so, we must consider reducing the degree of stimulus," Ueda said on Tuesday.

In current forecasts made in January, the BOJ expects inflation, as measured by an index excluding fresh food and fuel, to hit 1.9% in both fiscal 2024 and 2025. The central bank will review these forecasts at its next meeting on April 25-26.

In March, the BOJ ended eight years of negative interest rates and other remnants of its unorthodox policy, making a historic shift away from its focus on reviving growth and quashing deflation with decades of massive monetary stimulus.

Markets are on the lookout for clues on from Ueda how soon the central bank will next raise interest rates.

A Reuters poll taken shortly after the March move showed more than half of economists expect another rate hike this year, with October-December the most popular bet on the timing.

If wages do not rise much or external shocks hit Japan's economy, the BOJ may scale back stimulus at a slower pace or hold off on reducing monetary support, Ueda said.

© Reuters. Bank of Japan Governor Kazuo Ueda gestures as he speaks during a press conference after a policy meeting at BOJ headquarters, in Tokyo, Japan March 19, 2024. REUTERS/Kim Kyung-Hoon/File Photo

By contrast, the BOJ may scale down stimulus faster than expected if wages and inflation overshoot forecasts, he said.

"One factor we'll look at is whether pay hikes offered by firms in annual wage negotiations would appear in actual data," Ueda said. "We'll also check at each policy meeting whether rising wages will be reflected in services prices."

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.