Ueda Signals Japan Inflation Near Target, Rate Hikes

Bank of Japan Governor Ueda says inflation nears target as wage growth strengthens, keeping scope open for further rate hikes.

Bank of Japan Governor Kazuo Ueda said Japan’s underlying inflation continues to rise gradually and is steadily approaching the central bank’s 2% price stability target, underscoring the conditions for further interest-rate increases as the economy improves.

Ueda made the remarks on Thursday while speaking at a meeting of councillors of Keidanren, the Japan Business Federation, in Tokyo. His speech, titled “Toward the Achievement of the Price Stability Target Accompanied by Wage Increases,” focused on the changing dynamics of wages, prices, and monetary policy in Japan.

Ueda said tight labour market conditions are likely to persist unless the economy suffers a major shock. He attributed the sustained labour shortage to structural factors, including Japan’s declining working-age population, which continue to exert upward pressure on wages. According to Ueda, these conditions support a gradual but steady acceleration in underlying inflation.

Ueda Signals Japan Inflation Near Target, Rate Hikes

He noted that companies are increasingly passing on higher labour and raw-material costs not only in food prices, but across a broader range of goods and services. This shift, he said, reflects a meaningful change in corporate behaviour compared with the past, when firms often absorbed higher costs rather than raise prices.

“Amid tightening labour market conditions, firms’ wage- and price-setting behaviour has changed significantly in recent years,” Ueda said. He added that these developments indicate Japan is moving closer to a virtuous cycle in which rising wages and prices reinforce each other, a key objective of the Bank of Japan’s long-standing monetary easing policy.

Ueda emphasized that real interest rates remain very low, even after recent policy adjustments. As a result, the BOJ stands ready to continue raising interest rates if its baseline outlook for economic activity and prices materializes. He stressed that the central bank will adjust policy carefully, based on incoming data and evolving conditions, rather than follow a predetermined course.

By fine-tuning the degree of monetary accommodation, Ueda said the BOJ aims to secure the price stability target smoothly while supporting sustainable and long-term economic growth. His comments signaled growing confidence within the central bank that Japan’s shift away from ultra-loose monetary policy is becoming more durable as wage growth and inflation gain firmer footing.

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