Bank of Japan Governor Ueda Reaffirms Condition for Reviewing Economic Stimulus

As the governor of the Bank of Japan, Kazuo Ueda, attended a parliamentary session, he underscored his confidence in the prospect of wage increases and the Bank's commitment to considering an exit strategy for its economic stimulus once inflation consistently meets the target. This stance comes in the wake of Japan entering a period of recession characterized by poor consumer spending and investment.

Considering the Exit from Ultra-Loose Policy

Ueda clarified that the conditions to critically assess whether to sustain or end the BOJ's extensive stimulus measures, such as negative interest rates, hinge upon the success of initiating a beneficial wage-inflation dynamic. He emphasized the important role that annual wage negotiations play, which could lead to the conclusion that the ultra-easy policy might cease, particularly if wage discussions with significant corporations in mid-March prove fruitful.

Economic Outlook and Interest Rates

Even with unexpected GDP contraction in the last quarter, sources suggest that the BOJ is gearing up to phase out negative rates in the near future, placing more weight on the potential for wage growth. Current inflation rates surpass the BOJ's 2% goal, leading many to predict an end to the negative interest rate policy possibly by April. Ueda projects real wages to see a positive trajectory as a result of tightening job markets and diminishing impacts from past import cost increases, forecasting a 1.8% inflation for fiscal 2025.

Ueda also reassured that even after the abandonment of negative rates, Japan's monetary circumstances would likely remain supportive for the economy. However, prolonged support has contributed to the yen's depreciation, sparking concerns about how a weaker currency could affect consumer costs, especially from imports.

Government Stance on the Yen's Value

With the yen consistently staying close to the 150 per dollar mark, an indication of potential market intervention, Finance Minister Shunichi Suzuki expressed his concerns regarding the negative implications of a devalued currency. He emphasized that the market should avoid rapid fluctuations and instead favor stability.

Despite the weak GDP figures, the International Monetary Fund maintained its 2023 economic growth prediction for Japan at 1.9%, showcasing a resilient outlook on the nation's economic potential moving forward.

BOJ, Ueda, Stimulus