## Bank of Japan Governor Ueda Discusses Inflation and Interest Rates
In an interview with The Asahi Shimbun on April 3, Bank of Japan Governor Kazuo Ueda addressed the issue of inflation and potential interest rate hikes. He emphasized the need for greater certainty in achieving the 2% inflation target before any such decisions are made.
Ueda acknowledged the recent wage hikes resulting from the "shunto" spring labor offensive and their potential to contribute to higher consumer prices in the coming months. He also highlighted the BOJ's decision in March to end its negative interest rate policy, implemented under his predecessor Haruhiko Kuroda, due to the increased likelihood of a positive wage-price spiral.
However, Ueda cautioned that the underlying inflation rate of 2% had not yet been achieved, as higher import costs continued to impact product prices. He explained that the decision to end the negative interest rate policy was based on a "degree of certainty" in achieving the inflation target exceeding a certain level, which he estimated to be around 75%. He indicated that an increase to 80% or 85% could trigger a move towards higher interest rates.
Ueda expressed optimism that the wage hikes, coupled with the government's planned income tax cut in June, would boost personal consumption and contribute to higher consumer prices. This, in turn, could lead to a potential interest rate increase between summer and autumn.
However, he also emphasized the need for a loose monetary environment as long as the underlying inflation rate remained below 2%. He acknowledged that an excessively weak yen could impact the economy and consumer prices, potentially influencing decisions on interest rate hikes.
Ueda declined to comment on the current exchange rate but stated that significant exchange rate trends affecting the wage-price cycle could warrant a monetary policy response. He also acknowledged the possibility of inflation exceeding 2%, but downplayed its likelihood.
Finally, Ueda reaffirmed the BOJ's commitment to the joint statement with the central government, seeking to achieve a 2% inflation rate in a stable and sustainable manner.