BOJ Governor Ueda's comments at news conference

On October 30, the Bank of Japan (BOJ) maintained interest rates at their current levels during a news conference, declaring victory after nearly 14 years of efforts to achieve its price target. The central bank also signaled vigilance against inflation risks, suggesting that the next rate hike could occur as early as December. BOJ Governor Kazuo Ueda addressed the press, discussing various aspects of the bank's monetary policy.

Ueda emphasized the need to scrutinize economic and price risks, as well as financial conditions. He stated that while underlying inflation has reached levels consistent with the BOJ's 2% price target, it is crucial to anchor this inflation around the target. The bank aims to sustainably and stably achieve its price target, but this goal has not yet been realized. Ueda stressed the importance of anchoring medium- and long-term inflation expectations around the target.

The governor noted that there are still upside price risks that need to be monitored, but he refrained from suggesting that these risks have increased sharply compared to the previous month. He acknowledged that Japan's inflation expectations have yet to be fully anchored around the 2% target. By making appropriate monetary policy adjustments, the bank can make progress in achieving this goal, particularly given the upside price risks.

Ueda indicated that the likelihood of the baseline scenario being achieved, along with the assessment of risks, would be examined at each policy meeting, including the next one. The cumulative impact of past rate hikes would be considered when determining the neutral level of the policy rate. This factor will help guide the central bank in deciding when to adjust interest rates in response to both upside and downside risks.

Looking at various data, Ueda observed that underlying inflation has been converging around the 2% target. Rising energy and raw material costs, stemming from the Middle East conflict, have pushed up business-to-business prices. In September and October, upward pressure on consumer prices began to emerge, indicating that these factors are now influencing consumer price data as well. These factors contribute to the upward pressure on underlying inflation.

Regarding the future pace of rate hikes, Ueda emphasized that the decision will depend on the likelihood of inflation overshooting the target and the level of accommodative financial conditions. The bank will comprehensively assess these factors before determining the pace of future rate adjustments. The governor stressed that allowing underlying inflation to rise significantly would be undesirable, given that the target has already been reached at 2%. Therefore, appropriate responses to upside price risks are necessary.