BOJ chief says underlying inflation 'quite close' to price goal

Tokyo - Bank of Japan Governor Kazuo Ueda stated on Monday that underlying inflation is "quite close" to the central bank's 2% target, as strong demand for artificial intelligence (AI) in global markets contributes to inflationary pressure from a tight labor market. This statement came before the Bank of Japan's upcoming key policy meeting, during which the institution will release updated quarterly growth and inflation forecasts.

Markets will closely monitor these forecasts for indications of the timing of the next interest rate hike. Ueda emphasized the importance of anchoring underlying inflation around the 2% target in his remarks to parliament. While rising costs of raw materials due to the Middle East conflict are driving inflation, a tight labor market and moderate economic recovery are also placing upward pressure on prices through demand factors.

Ueda noted that the surge in global AI demand is boosting capital expenditure and exports, thereby increasing prices for a wide range of goods. He also suggested that raising interest rates at an appropriate pace can help avoid spikes in bond yields. "As underlying inflation approaches 2% and financial conditions remain accommodative, failing to adjust our policy rate appropriately could push up long-term interest rates by stoking market concern over an inflation overshoot," Ueda added.