Bank of Japan Governor Kazuo Ueda: Steadily advancing the 2% inflation target, suggesting further interest rate hikes may be sought next year.
On December 25, according to Bloomberg, Bank of Japan Governor Kazuo Ueda stated that the central bank is steadily approaching the 2% inflation target and has indicated that the Bank of Japan may further raise interest rates next year.
He believes that against the backdrop of a tightening labor market, significant changes in corporate wages and pricing behavior have also made the conditions for achieving the '2% price stability target with wage growth' increasingly mature, entering a steady realization phase.
Kazuo Ueda is confident in forming a virtuous cycle of wages and prices in the Japanese economy, and frankly stated that the possibility of Japan's economy returning to a long-term balance between wages and prices has significantly decreased.
His remarks come after the Bank of Japan raised the policy interest rate from 0.5% to 0.75% on December 19, marking the highest interest rate in nearly 30 years since September 1995.
Ueda's latest speech further explains the decision-making logic behind this interest rate hike. He stated that if the economic and price trends meet expectations, monetary policy will continue to adjust, and will maintain an appropriate pace to smoothly achieve the inflation target, while laying a foundation for long-term economic growth and building entrepreneur confidence.
Although the policy direction is clear, Ueda's speech also highlighted the practical resistance in the process of normalizing monetary policy. The core issue lies in weak actual wage growth, with the nominal wage increases continuously being overshadowed by faster price increases, leading to a continuous shrinkage of the public's actual purchasing power, which in turn puts pressure on the domestic consumption recovery.
Thus, his emphasis on maintaining an 'appropriate pace' implies that the Bank of Japan will adopt a cautious and gradual interest rate hike path, and will flexibly adjust policies based on core data such as wages, consumption, and core inflation.
In summary, Ueda's statement marks the official end of Japan's nearly thirty-year era of ultra-low interest rates, and monetary policy will steadily move towards normalization.
This process will not take an aggressive approach but will be based on economic data, balancing internal and external risks with a cautious forward-looking path, with the core goal of achieving price stability while laying a solid foundation for Japan's long-term economic growth.
