MNI BRIEF: BOJ To Proceed Cautiously Towards 2% Target - Ueda

Bank of Japan Governor Kazuo Ueda said on Monday that the Bank will cautiously proceed towards achieving its 2% price target in a stable and sustainable manner.

“Thus far, we have made progress in moving away from zero [percent] and lifting inflation expectations, but we must now re-anchor them, this time at the 2% target,” Ueda said at the 2024 BOJ-IMES Conference. “We will proceed cautiously, as do other central banks with inflation-targeting frameworks. While many of the challenges we face are similar to those encountered by our counterparts, some are uniquely difficult for us.”

He said determining the neutral rate is one such challenge, given Japan's prolonged period of near-zero short-term interest rates over the past three decades.

“Although real interest rates have exhibited some fluctuations, the absence of significant interest rate movements poses a considerable obstacle in assessing the economy's response to changes in interest rates,” Ueda explained. "The entrenched nature of low inflation expectations played a key role; it led to changes in economic agents' behaviour, especially the strategic pricing behaviour of firms, and, in turn, prolonged the period of the zero-inflation trap."

MNI reported recently the Bank is considering a reduction to its JGB buying. (See MNI POLICY: BOJ Board Weighs Pace, Scale Of JGB Reductions)