Ueda Says Price Goal Is Within Reach
Bank of Japan Governor Kazuo Ueda said on Monday that underlying inflation has moved quite close to the central bank's 2% target. Speaking to parliament, he pointed to a tight labor market, a moderate economic recovery and unusually strong worldwide demand for artificial intelligence as forces lifting prices across a broad range of goods. He argued that keeping underlying inflation anchored near 2% is growing more important.[S1][S2][S3][S4][S5][S6][S7][S8]
Ueda also noted that higher raw material costs linked to conflict in the Middle East are contributing to inflation, while demand-driven pressure from employment and growth is adding to it. His comments landed shortly before the central bank's two-day policy meeting, which wraps up on October 30 and will bring updated quarterly projections for growth and prices that investors will parse for signals on the next rate increase.[S1]
Rate Path and Bond Market Concerns
According to Ueda, moving the policy rate upward at a suitable pace would help prevent sharp jumps in bond yields. With underlying inflation nearing 2% and financial conditions still accommodative, he said, declining to adjust the policy rate in a timely way could lift long-term interest rates by making markets worry about an inflation overshoot. Japanese government bond yields have already climbed on expectations of further tightening and on concern that Prime Minister Sanae Takaichi's large spending plans could strain the country's finances further.[S1]
Asked by an opposition legislator about how fiscal spending affects prices, Ueda said more expenditure would stimulate the economy and thereby raise price and wage growth. He added that if such spending expands Japan's supply capacity, it could in the longer run help keep inflation in check. The BOJ raised rates in September, and many officials are wary of another increase this month, preferring to study how earlier moves have affected financial conditions, according to sources cited by Reuters.[S1]
Many market participants expect the BOJ to leave its policy rate at 1.25% at this meeting while signaling that an increase to 1.5% remains possible as soon as December.[S1]
