Kazuo Ueda, the Governor of the Bank of Japan, addressed key monetary policy considerations in a recent update. He emphasized that the bank will evaluate relevant data and factors at each policy meeting before making decisions. This approach affirms the bank’s commitment to a data-driven strategy in navigating complex economic conditions.
Ueda highlighted the importance of monitoring various influences, particularly developments in the US economy. While acknowledging the need for data, he indicated that the bank will not delay its policy decisions awaiting complete clarity. Furthermore, he noted that short-term currency fluctuations would not be the focus of their commentary, although the impact of foreign exchange rates on economic forecasts and associated risks will be scrutinized during meetings.
The governor also pointed out potential risks related to monetary policy adjustments. He warned that failure to appropriately modify the level of monetary support could necessitate abrupt interest rate hikes. Positive trends in service prices suggest some progress toward reaching the inflation target, yet challenges remain. The depreciation of the yen is contributing to increased costs for consumers while simultaneously benefiting exports and enhancing inbound tourism.
Ueda remarked on the delicate balance the central bank must maintain, indicating that prolonged low real interest rates could lead to inflation accelerating beyond the 2% target. In such a scenario, the bank might be compelled to act more aggressively on interest rates. Furthermore, he mentioned that, compared to the situation in July, there appears to be no significant build-up of yen carry positions in the market, which suggests a more stable foreign exchange environment.
