Attention on Inflation Risk Needed More Than Ever: BOJ Ueda

Tokyo, July 31 (Jiji Press)–Bank of Japan Governor Kazuo Ueda said Friday that it is “more necessary than ever” to pay attention to the risk of higher inflation. He therefore indicated the BOJ’s stance to keep a close watch on whether prices in the nation will rise excessively and have adverse impacts on the economy. Underlying inflation is expected to remain consistent with the bank’s 2 pct price stability target from the second half of fiscal 2026 through the next fiscal year, he told a press conference after the central bank decided to keep its monetary policy unchanged. But the top Japanese central banker added that there is a risk of inflation rising above the target, emphasizing that the BOJ will thoroughly discuss such risks at its next and later policy-setting meetings. If the central bank fails to stabilize prices and is forced to raise the policy rate sharply as a result, that would negatively impact the promotion of healthy growth investment, Ueda also said. Meanwhile, the BOJ chief said that the risk of Japan returning to deflation is not zero. Ueda indicated that the BOJ will continue pursuing interest rate hikes. “If we judge financial conditions are too accommodative, we may increase the pace of rate hikes” while assessing the impact on the economy and prices of the Middle East situation, artificial intelligence-related demand and foreign exchange market developments. Ueda stopped short of presenting his views on the possible impact of a plan by the administration of Prime Minister Sanae Takaichi to cut the consumption tax rate on food to 1 pct from 8 pct for two years starting in April 2027. But he said, “It is important for the government to obtain sufficient financial market confidence in its medium- to long-term fiscal consolidation efforts.” At its two-day meeting through Friday, the BOJ’s Policy Board decided by a vote of eight to one to maintain the policy of guiding the unsecured overnight call rate, Japan’s benchmark short-term interbank rate, to around 1 pct. Also, the bank raised its outlook for Japan’s real gross domestic product growth for fiscal 2026 to 0.6 pct from 0.5 pct. By contrast, the BOJ lowered its projection for core consumer price growth for the year to 2.5 pct from 2.8 pct. END [Copyright The Jiji Press, Ltd.]