BoJ’s Ueda says will closely watch impact of Middle East developments on domestic, overseas economy

Key quotes

Mechanism in which wages, prices rise in tandem becoming embedded in japan's economy.

Wages need to increase significantly for Japan to sustainably, stably achieve BoJ's price target.

What's most important in raising real wages is to increase medium-, long-term labour productivity.

It is hard to directly influence real wages with monetary policy

Hard to set real wage growth as monetary policy goal.

Depending on middle east development, it could have big impact on global, Japan economy via energy price moves, market impact.

Rising oil prices would worsen terms of trade for japan, put downward pressure on its economy and underlying inflation.

If oil price rises persist, it could push up underlying inflation by heightening medium-, long-term household and corporate inflation expectations.

We will closely watch impact of Middle East developments on domestic, overseas economy.

We exchanged general views on economic, price developments, when asked whether PM Takaichi voiced reservations over rate hike in meeting with Ueda in February.

If economy, prices move in line with our forecast, we will continue to raise interest rates.

Won't comment on FX levels.

We are very carefully analysing how FX fluctuations could affect current, future price moves.

Market reaction

As of writing, the USD/JPY pair is down 0.17% on the day at 157.39.

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.

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