Kazuo Ueda, Governor of the Bank of Japan (BOJ), on Monday expressed cautious optimism about emerging signs of sustainable inflation in Japan's economy but emphasized that the central bank is not yet ready to relax its monetary easing policies.
Ueda noted that Japan's economy is at a critical juncture where a positive cycle between wages and prices is forming. He emphasized the importance of carefully nurturing these early signs of economic change. The BOJ's outlook indicates that this beneficial wage-price cycle will gain strength, with the key driver for price increases expected to shift from higher import costs to stronger wages.
However, Ueda highlighted the high degree of uncertainty surrounding whether changes in some companies' wage and price-setting behaviors would become more prevalent. As such, he reaffirmed the BOJ's commitment to continuing its monetary easing policies under the current yield curve control framework.
On Friday, the BOJ's policy board decided to keep its interest-rate targets steady. This includes maintaining a 1% cap on the yield of 10-year Japanese government bonds, an increase from the previous cap of 0.5% set at the July meeting. Short-term rates were also held steady at minus 0.1%.
The decision comes amid increasing speculation about a potential policy shift by the BOJ due to rising inflation. Last week, the yield on 10-year Japanese government bonds (JGB) climbed to 0.745%, marking a ten-year high.
Ueda stated that if the central bank gains confidence in reaching its price goal, it would contemplate abandoning its yield curve control policy. However, he acknowledged that there is still some way to go before such a stage is reached.
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