BOJ Governor Ueda reiterates inflation progress and wage growth focus ahead of policy meeting.

Summary:

• Bank of Japan Governor Kazuo Ueda reiterated that underlying inflation is gradually accelerating toward the 2% target.

• He stressed that sustainable inflation must be supported by wage growth, reinforcing the BOJ’s long-standing policy condition.

• The comments came ahead of the BOJ’s two-day policy meeting ending Thursday, where rates are widely expected to remain unchanged at 0.75%.

• Ueda said wages and prices are rising moderately together, as companies become more willing to pass on higher input and labour costs.

• The BOJ expects underlying inflation to converge toward the 2% target between the second half of fiscal 2026 and fiscal 2027.

• Ueda also reiterated the BOJ’s readiness to act if government bond yields rise sharply, maintaining flexibility in the JGB market.

Bank of Japan Governor Kazuo Ueda has reiterated that underlying inflation in Japan is gradually strengthening toward the central bank’s 2% target, reinforcing the message policymakers have been delivering ahead of this week’s monetary policy decision.

Speaking in parliament, Ueda said the current inflation trend reflects a gradual alignment between wages and prices as companies become more willing to pass on higher raw material and labour costs to consumers. The development marks a notable shift in Japan’s inflation dynamics, where persistent price increases historically proved difficult to sustain without corresponding wage growth.

Ueda emphasised that the central bank’s objective is not simply to reach the 2% inflation target temporarily but to achieve it in a durable and stable manner supported by rising wages. According to the BOJ’s current outlook, underlying inflation is expected to move closer to the target level between the second half of fiscal 2026 and fiscal 2027.

The remarks largely reinforce the policy outlook that markets have been anticipating ahead of the Bank of Japan’s two-day policy meeting, which concludes on Thursday. Investors widely expect the central bank to keep its policy rate unchanged at 0.75%, following the rate increase delivered in December that lifted borrowing costs to their highest level in roughly three decades.

While the BOJ has begun normalising policy after years of ultra-loose settings, officials remain cautious about tightening too quickly until they are confident that wage-driven inflation can be sustained.

Ueda also addressed developments in Japan’s government bond market, reiterating that long-term interest rates are primarily determined by market forces reflecting expectations about the economic outlook, inflation and policy direction.

At the same time, he reaffirmed that the central bank stands ready to act in exceptional circumstances if yields rise abruptly in a way that threatens financial stability.

The comments underscore the BOJ’s careful balancing act as it gradually exits ultra-easy policy while monitoring inflation dynamics, wage growth and bond market stability.