BOJ Ueda Indicates Potential Shift from Easy Policy Before Real Wages Increase, Reports Reuters

By Leika Kihara

TOKYO – Bank of Japan Governor Kazuo Ueda stated on Wednesday that the central bank does not have to wait for inflation-adjusted wage growth to become positive before considering the end of its ultra-loose monetary policy.

Ueda indicated that real wages are expected to improve once a positive wage-inflation cycle begins. However, he emphasized that it’s not a prerequisite for decision-making on monetary policy. The governor mentioned that the decision to end ultra-loose policy could be made if there is reasonable certainty that real wages will improve in the near future.

He highlighted that the impact of rising import prices must subside and that wages, alongside inflation, need to increase together for the Bank of Japan to contemplate exiting its extensive easing measures.

Analysts predict that Japan’s inflation-adjusted real wages, which have declined for 18 consecutive months as of September, will likely continue to fall into the next year, as wage increases fail to keep pace with ongoing price rises.

Currently, the Bank of Japan is targeting a yield of 0% under its yield curve control policy while maintaining short-term interest rates at -0.1% to stimulate growth and sustainably reach its 2% inflation target.

Ueda reiterated the Bank’s commitment to maintaining an ultra-loose monetary policy until the recent cost-push inflation shifts towards being driven more by strong domestic demand and increased wages. He noted that there is still a gap between current trend inflation and the 2% target, which justifies the continuation of substantial easing measures.

As of September, Japan’s core consumer inflation stood at 2.8%, remaining above the BOJ’s target but dipping below the 3% mark for the first time in over a year due to the waning effects of previous surges in global commodity prices.

Recent forecasts from the BOJ project core consumer inflation to remain at 2.8% this year and next, but to fall below 2% by 2025.

Ueda also commented on the impact of currency fluctuations, stating that the central bank is monitoring the side effects of its bond yield control policy. He acknowledged that if yield curve control leads to increased market volatility, it would be considered a side effect of the policy.

Following a brief period of stabilization, the yen again fell below 150 per dollar, reaching 150.51 against the dollar on Wednesday. Traders view this level as increasing the likelihood of currency intervention by authorities.

Some lawmakers have criticized the yield curve control policy for exacerbating the interest rate gap between the U.S. and Japan, leading to yen depreciation that raises import costs. The BOJ did modify its yield curve control policy in July and October, allowing long-term rates to rise more in response to higher inflation and the associated risks of market volatility.