In a speech today, BoJ Governor Kazuo Ueda reiterated the central bank’s commitment to achieving sustainable and stable 2% inflation. He acknowledged the progress made in “moving away from zero” and “lifting inflation expectations,” but underscored the need to “re-anchor” them at 2%.
Ueda stressed the importance of a cautious approach, aligning with other central banks that employ inflation-targeting frameworks. However, he highlighted that some challenges are “uniquely difficult” for Japan.
A notable example is determining the “neutral interest rate,” a task complicated by Japan’s “prolonged period” of near-zero short-term interest rates over the past three decades. This historical context makes it particularly challenging to estimate the neutral rate accurately.
Despite some fluctuations in real interest rates, the lack of significant interest rate movements remains a “considerable obstacle” for BoJ. This impedes their ability to assess the economy’s response to changes in interest rates effectively.
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