MNI: BOJ's Ueda Sees Inflation Near 2%, Easing Still Needed

Inflation expectations remain below the Bank of Japan's 2% target, despite reaching their highest levels in 30 years, which suggests that the BOJ must maintain accommodative policy for now, said Governor Kazuo Ueda said Tuesday. 

“Inflation expectations began to rise again in 2022, responding to global inflation dynamics and Japan’s continued monetary easing, Ueda said in opening remarks at the 2025 BOJ-IMES Conference.

 "They now stand between 1.5-2.0%, the highest in 30 years, though still below the 2% target. In other words, we have managed to de-anchor expectations from zero, but have yet to re-anchor them at 2%. This is why we are still maintaining an accommodative policy stance."

Ueda noted a gap between the central bank's focus on underlying inflation and the public's focus on headline inflation. “This divergence has always existed to some extent, but its recent magnitude and persistence have been particularly problematic in Japan,” Ueda added.

He also pointed to new supply shocks driven by food price increases. “Our baseline view is that the effects of food price inflation are expected to wane. However, given that underlying inflation is closer to 2% than a few years ago, we need to be careful about how food price inflation will impact underlying inflation.”

Ueda reaffirmed the BOJ's baseline view that underlying inflation will gradually approach 2% over the second half of the forecast horizon. “As discussed in our quarterly Outlook Report, there are both upside and downside risks around the baseline scenario, and risks to economic activity and prices are skewed to the downside for fiscal 2025 and 2026,” he said.

“To the extent that incoming data allows us to gain more confidence in the baseline scenario, as economic activity and prices improve, we will adjust the degree of monetary easing as needed to ensure the achievement of the sustainable 2% inflation target. Considering the extremely high uncertainties, it is important for us to judge whether the outlook will be realised, without any preconceptions."