BoJ’s Ueda: Underlying inflation near 2% target

Bank of Japan (BoJ) Governor Kazuo Ueda said on Monday that underlying inflation near the 2% target. Ueda further stated that if bank raises short-term policy rate, long-term interest rates likely to rise steadily with policy. 

Key quotes

Underlying inflation near 2% target. 

Anchoring core inflation near 2% grows more crucial. 

Japan experiencing positive loop of increasing wages, recovering prices. 

Middle East conflict is driving up energy and other supply-driven inflation pressures. 

Robust global al demand driving up domestic capex, exports and various goods prices as demand-led inflation. 

Japan's steady economic recovery and tight labor market also fuel inflation. 

No shift in central bank's fundamental bond taper approach. 

It is inappropriate to preannounce timing of emergency bond market measures. 

Bank will review market conditions including speed of long-term rate rise and signs of market instability to decide on intervention. 

If bank raises short-term policy rate, long-term interest rates likely to rise steadily with policy. 

Financial conditions stay accommodative. 

If policy rate isn't adjusted properly, market concerns about inflation risk could raise long-term rates. 

By implementing monetary policy properly to reach 2% inflation target, BoJ can help stabilize JGB market. 

Fiscal spending supports demand, helps raise prices and wages.

Fiscal spending that boosts Japan’s supply capacity could help tame inflation over time.

Market reaction

At the time of writing, the USD/JPY pair is down 0.13% on the day at 157.80.

Ueda leans mildly hawkish as BoJ ties rate path to inflation and JGB stability

Ueda’s 7/10 FXS Speechtracker score is slightly below the 7.4/10 historic average, but the emphasis on “underlying inflation near 2%” and a “positive loop” of wages and prices marks a mildly hawkish tilt versus Japan’s past disinflation narrative. The focus on anchoring core inflation at 2%, robust global demand lifting exports and capex, and a tight labor market fueling inflation all support a gradual shift away from ultra-emergency settings, which is modestly supportive for the Yen.

At the same time, Ueda stresses no change in the fundamental bond taper approach and refuses to preannounce emergency bond measures, signaling caution and a desire to avoid destabilizing the JGB market. The message that properly calibrated rate hikes would allow long-term yields to rise “steadily” while keeping financial conditions accommodative suggests a controlled normalization path, limiting upside for the Yen in the near term but reinforcing a slow, hawkish-leaning bias over the medium term.