BoJ’s Ueda: Our basic stance is to continue raising interest rates

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Bank of Japan (BoJ) Governor Kazuo Ueda reaffirms that the direction of the monetary policy remains on the upside, while speaking at the Kisaragi-kai Meeting on Wednesday.

Remarks

Our basic stance is to continue raising policy rate in accordance with economic, price, financial developments.

This year's oil price increase is not as large as in the first oil crisis, but it is comparable in magnitude to the other shocks.

Likely that a rise in crude oil prices will push up the prices not only of energy, but also prices in general, particularly of a wide range of goods.

BoJ will continue to raise policy rate at appropriate pace if it judges that likelihood of realizing baseline scenario will rise.

Even if situation regarding middle east remains unclear, should it be judged that upside risks to prices outweigh downside risks to economic activity, it will be necessary to thoroughly discuss pros and cons.

Market reaction

A wild upswing appeared in the Japanese Yen (JPY), following hawkish comments from BoJ Governor Kazuo Ueda. However, the currency seems to have failed to hold gains and falls back. However, USD/JPY is still 0.12% down to near 159.75 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.