BOJ's Ueda signals chance of policy shift, progress on price goal

FE Team | Published: December 25, 2023 22:00:27

TOKYO, Dec 25 (Reuters): Bank of Japan Governor Kazuo Ueda said on Monday the likelihood of achieving the central bank's inflation target was "gradually rising" and it would consider changing policy if prospects of sustainably achieving the 2 per cent target increase "sufficiently".
While companies are becoming more open to raising wages and prices, the key is whether wages will continue rising next year and lead to further increases in service prices, Ueda said.
"If the virtuous cycle between wages and prices intensifies and the likelihood of achieving our price target in a sustainable and stable manner rises sufficiently, we will likely considering changing policy," Ueda said, offering the clearest sign to date of the chance of ending ultra-easy monetary policy.
Ueda said the BOJ had not decided on a specific timing to change the loosest monetary stance of any major central bank, due to uncertainties over economic and market developments.
"We will carefully examine economic developments as well as firms' wage- and price-setting behaviour, and thereby decide on future monetary policy in an appropriate manner," he said.
The language differed slightly from Ueda's usual phrase calling for the need to "patiently" maintain ultra-loose policy for the time being.
The Japanese government bond market shrugged off Ueda's remarks, with yields falling as the BOJ conducted a regular bond buying operation across the curve.
With inflation exceeding the target for well over a year, many market players expect the BOJ to lift short-term interest rates out of negative territory next year, with some betting on higher rates as early as January.
Ueda said Japan's prolonged experience of low inflation and stagnant wage growth likely heightened public perceptions that prices and wages would remain stuck around zero.
Changing such perceptions and creating a cycle in which wages and prices rise in tandem would have benefits such as leading to more efficient allocation of labour, he said.