BoJ Governor Ueda affirms commitment to easing amid uncertain inflation-wage dynamics

BoJ Governor Kazuo Ueda reaffirmed today the central bank’s commitment to its accommodative stance.

“We’re seeing more positive signs than before in corporate wage and price-setting behavior,” Ueda stated, acknowledging the nascent signs of a healthier inflation-wage cycle. However, he also underscored the prevailing uncertainties, admitting, “there’s still uncertainty on whether the positive cycle will strengthen, as we predict.”

With an eye on supporting economic activity, Ueda emphasized the central bank’s resolve, “We will patiently maintain monetary easing,” indicating no immediate shift from BoJ’s long-standing dovish position.

Last week’s decision to relax the 1% cap on 10-year JGB yield, allowing greater movement in long-term borrowing costs, was a nod to flexibility in BoJ’s approach. Today, Ueda elaborated, “We will conduct nimble market operations when interest rates rise, depending on the level and speed of moves of long-term rates.”

Ueda also sought to temper market expectations regarding the potential for sharp rises in long-term yields. “Even if long-term rates come under upward pressure, don’t expect the 10-year JGB yield to sharply exceed 1%,” he stated.

The Governor’s comments reflect a deep consideration of the “real” interest rate, which factors in inflation expectations. He explained, “Long-term rates may rise somewhat but what’s important is to look at the real interest rate that takes into account inflation expectations.”

He reassured markets, “Even if long-term rates rise, real interest rates will move in negative territory so monetary conditions will be sufficiently accommodative.”