Finance & Economics

Bank of Japan Governor Signals Chance of Policy Shift

The governor of the Bank of Japan, Kazuo Ueda, on Monday, December 25, stated that there is currently an increasing likelihood that the financial regulator’s inflation target will be reached, noting the possibility of making adjustments to the policy of the organization he heads.

Bank of Japan Governor Signals Chance of Policy Shift

Mr. Ueda said that making adjustments to the concept of the activity of the central bank of an Asian country is a realistic scenario, provided that the prospects for a sustained dynamic of increase in the cost of goods and services by 2% are sufficiently fixed.

The head of the Bank of Japan noted that the favorable cycle between wages and prices, demonstrating growth, and the steady probability of reaching the target price level create circumstances sufficient to discuss the issue of changing the policy of the financial regulator.

The media claim that Kazuo Ueda’s statements made on December 25, as of today, are the most distinct signal of the existence of prospects for completing the implementation of the strategy of ultra-soft monetary measures in the Asian country.

The head of the Bank of Japan also noted that currently companies in this state are becoming more open to raising wages and prices. Kazuo Ueda separately stated that the organization he heads has not yet made a specific decision on the timing of changing the softest monetary policy of one of the major central banks in the world. According to him, in this case, the final solution to the issue is hindered by circumstances in the form of uncertainty about the further development of the situation in the sphere of the economy and the lack of understanding of the after dynamic of the market.

Kazuo Ueda said that the Bank of Japan will carefully study the behavior of companies concerning such aspects as the approach to setting salaries and pricing strategy. He has already noted, as mentioned above, that firms are becoming more open in the context of these issues, but, apparently, additional clarifications and the formation of a more complete understanding of business sentiment are required. Mr. Ueda also said that the organization he heads will study the specifics of economic development in the current configuration of this process. After carrying out the relevant work, the financial regulator will decide on changes in monetary policy.

Inflation has exceeded the Bank of Japan’s target for over a year. Many market participants believe that this circumstance will prompt the financial regulator to raise short-term interest rates from negative territory next year. Some of them admit the possibility of the Bank of Japan making an appropriate decision next year.

As we have reported earlier, Bank of Japan Governor Signals Low Probability of Ending Negative Rate in 2023.