Bank of Japan (BOJ) Governor Kazuo Ueda said that price growth remains slower than the central bank’s goal, explaining why officials are continuing with their current monetary-policy strategy.
“We think underlying inflation is still a bit below our target of 2 percent,” Ueda said on Saturday during a panel discussion at the US Federal Reserve’s annual symposium in Jackson Hole, Wyoming. “This is why we are sticking with our current monetary easing framework.”
Annual inflation, as measured by consumer prices excluding fresh food, registered 3.1 percent last month and the rate “is expected to decline toward the end of the year,” Ueda said.
Photo: Bloomberg
Referring to Japan’s economic growth earlier this year, Ueda said it was “to a certain extent a response to a loosening of [COVID-19] pandemic-related restrictions.”
“We think domestic demand is still on a healthy trend, although that’s something that needs to be checked with” third-quarter data, Ueda said.
He did not comment on foreign exchange rates during his address, which was part of a panel on globalization.
He spoke a day after US Fed Chairman Jerome Powell sent the yen down against the US dollar by indicating that US interest rates are likely to stay elevated and might rise further.
Powell said in a Friday speech in Wyoming that the US central bank is ready to tighten again if needed to tame inflation.
Getting inflation down to 2 percent is expected to require softer labor-market conditions and a period of below-trend economic growth, he said.
Toward the end of an about 20-minute talk, Ueda also called China’s recent economic slowdown a “disappointment,” with last month’s data “on the weak side.”
“The underlying problem appears to be the adjustment in the property sector and the spillover to the rest of the economy,” Ueda said of China.
He cited relative strength in the US economy as providing “some offset” to Japan.
Traders are searching for more clues about the policy path of the world’s last anchor of low interest rates. The BOJ loosened a grip on its yield curve control program last month in Ueda’s first surprise move. He denied it was a step toward normalization.
Most BOJ watchers no longer expect any policy change this year as the governor takes time to monitor inflationary pressure, the weak yen and multiyear highs in bond yields. April has become the most popular month for a policy change forecast in a Bloomberg survey.
A government report on Friday showed that inflation in Tokyo slowed below 3 percent for the first time in almost a year, an outcome that supports the BOJ’s view that price growth will cool.
On globalization, speaking of efforts by the US and other nations to diversify trade away from China and shift manufacturing to allied countries, Ueda said that creates uncertainties for the economy and monetary policy.
In addition, he also said that Japan might be at risk of losing out in the global race to attract top companies because it might not have adequate infrastructure.
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