BoJ’s Ueda: To raise rates if economy, prices, move in line with forecasts

Key quotes

Will judge without preconceptions whether the economy and prices are on track.
Japan’s economic growth likely to moderate, then pick up as overseas economies return to growth.
Tariff policy creates global uncertainty; a 15% tariff rate would weigh on Japan's economy.
Must maintain an accommodative monetary environment to support the economy.
In judging whether the economy and prices are improving, will scrutinise the global outlook, including the U.S., the impact of tariffs on corporate profits, wage and price-setting behaviour, and price developments.
Will scrutinise whether the baseline forecast for the economy and prices will materialise, as well as upside and downside risks.
There are various uncertainties on Japan’s economic outlook.
The U.S. economy appears to continue moderate growth, but the slowdown in job growth is becoming clearer.
Have not yet seen U.S. tariff impacts spreading to Japan’s overall economy.
There is no doubt tariffs are being widely imposed on U.S. imports; the question is when and in what form the impact will appear.
The slowdown in U.S. employment growth may be a sign that deteriorating corporate profits are beginning to hurt jobs and incomes.
It is possible that momentum to pass on higher prices to wages could weaken if uncertainty over trade policies and overseas economy persists.
Japanese companies' business strategies based on the agreed 15% U.S. tariff rate will eventually become clear.
There are some signs consumers cutting back on spending due to rising food prices, so watching moves carefully.
Corporate profits likely to stay elevated as a whole, but some manufacturers are facing the impact of tariffs as seen in exports and output data.

Market reaction

At the time of press, the USD/JPY pair was up 0.16% on the day at 147.50.

Bank of Japan FAQs

What is the Bank of Japan?

The Bank of Japan (BoJ) is the Japanese central bank, which sets monetary policy in the country. Its mandate is to issue banknotes and carry out currency and monetary control to ensure price stability, which means an inflation target of around 2%.

What has been the Bank of Japan’s policy?

The Bank of Japan embarked in an ultra-loose monetary policy in 2013 in order to stimulate the economy and fuel inflation amid a low-inflationary environment. The bank’s policy is based on Quantitative and Qualitative Easing (QQE), or printing notes to buy assets such as government or corporate bonds to provide liquidity. In 2016, the bank doubled down on its strategy and further loosened policy by first introducing negative interest rates and then directly controlling the yield of its 10-year government bonds. In March 2024, the BoJ lifted interest rates, effectively retreating from the ultra-loose monetary policy stance.

How do Bank of Japan’s decisions influence the Japanese Yen?

The Bank’s massive stimulus caused the Yen to depreciate against its main currency peers. This process exacerbated in 2022 and 2023 due to an increasing policy divergence between the Bank of Japan and other main central banks, which opted to increase interest rates sharply to fight decades-high levels of inflation. The BoJ’s policy led to a widening differential with other currencies, dragging down the value of the Yen. This trend partly reversed in 2024, when the BoJ decided to abandon its ultra-loose policy stance.

Why did the Bank of Japan decide to start unwinding its ultra-loose policy?

A weaker Yen and the spike in global energy prices led to an increase in Japanese inflation, which exceeded the BoJ’s 2% target. The prospect of rising salaries in the country – a key element fuelling inflation – also contributed to the move.