BoJ’s Noguchi: Will gradually adjust the degree of monetary accommodation if ...

Additional quotes

What is needed for inflation to be sufficiently sustainable and stable is steady expansion in demand and an accompanying sustained increase in nominal wages.

Although growth in the CPI will likely decline overall, I believe that a chain reaction of price hikes could occur in certain areas, as has happened with food, including rice.

Once tightness in supply and demand conditions begins to generate upward momentum, it is not rare at all for prices to continue rising as firms compensate for previous delays in passing on costs.

Whether or not underlying inflation will continue to rise steadily toward 2% target will depend entirely on whether the momentum of wage increases is sustained, spreads to small and medium-sized firms and regional economies.

Impact from US tariffs limited so far.

If price target achieved in 2nd half of projected period of outlook report, BoJ should adjust rate at appropriate pace to align with that tlimeline.

That means raising policy interest rate at a pace that will make it possible to smoothly reach the neutral interest rate when 2% inflation target is achieved.

Market reaction

The Japanese Yen (JPY) holds gains following these comments, with USD/JPY down 0.23% on the day at 156.12, as of writing.

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.