Bank of Japan (BOJ) Governor Kazuo Ueda has expressed optimism for a sustained moderate recovery of the Japanese economy, despite potential long-term rate hikes and inflation expectations. Speaking in Aichi Prefecture, Ueda highlighted an emerging proactive approach in Japanese firms towards wage and price setting, suggesting a growing potential of meeting the central bank’s 2% inflation target.
This trend is concurrent with the BOJ’s commitment to maintaining ultralow rates and its decision to let long-term government yields exceed the previous 1.0% ceiling under yield curve control. The negative real interest rate plays a key role in supporting economic activity, even as uncertainty surrounds the wage-inflation cycle and the ongoing need for monetary easing.
Ueda stressed the importance of observing whether this proactive behavior becomes more common, intensifying the reciprocal relationship between wages and prices. The BOJ’s strategy involves continuous monetary easing to boost Japan’s economy and create a favorable environment for wage increases.
While a rise in 10-year yields reflecting economic fundamentals is expected, Ueda does not foresee them significantly exceeding the 1.0% limit. This outlook underscores the central bank’s effort to balance economic recovery with fiscal stability, as it navigates the impact of potential rate hikes on Japan’s economic landscape.
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