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MNI: BOJ's Ueda Uncertain Of H2 2023 Core Inflation Rebound

(MNI) Tokyo

The Bank of Japan expects year-on-year core inflation to rise again following what is set to be a dip toward the middle of fiscal 2023, though this recovery is not certain, Governor Kazuo Ueda told reporters on Thursday.

“We expect [core inflation] to rebound. But the confidence [in the rebound] isn’t as strong as the confidence (in the fall). That is a big point,” Ueda said in a joint interview with MNI and other media.

The BOJ’s board is likely to produce relatively high inflation forecasts for the second half of this fiscal year, though more data is required to assess its sustainability, he said.

Last week, Ueda, who has indicated that the BOJ will maintain its yield curve control framework until it achieves its 2% price target, said that CPI inflation will fall below 2% toward the middle of fiscal 2023. But investors and former officials have speculated it could soon adjust its yield targets. (See MNI INTERVIEW: Ex-BOJ’s Sekine Sees YCC Adjustment in June)

The BOJ continues to closely watch data on the output gap, wages and inflation expectations, which determine underlying price trends.


Strong demand will be necessary for wages to rise as a second-round effect of inflation, Ueda noted, though he added that while wages are key to BOJ considerations, the crucial factor for policy was “whether prices rise in a sustainable and stable manner.” The Bank could determine prices were increasing sustainably even if core inflation is below 2%, he said.

The BOJ’s assessment of the U.S. economy will be very significant, Ueda said, adding that while U.S. growth has fallen, overall the economy looked quite solid. But it is uncertain whether the U.S. will undergo a soft landing, with inflation coming down during a gradual economic deceleration, or a harder landing, with a sharp-slowdown as the lagged effect of monetary policy takes effect, he added.

A third risk is that inflation does not fall as much as the Fed expects.

“As a result, the period of high interest rates will be prolonged or the Fed will need to raise rates further,” Ueda warned, adding that all three scenarios remain possible.

MNI Tokyo Bureau | +81 90-2175-0040 |
MNI Tokyo Bureau | +81 90-2175-0040 |

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