tokyo – Bank of Japan (BOJ) Governor Ueda Kazuo asserted on the 3rd that the nation’s wage and price growth mechanism remains resilient, even in the face of potential disruptions from U.S. tariff policies. Speaking in Tokyo, Governor Ueda reiterated his intention to maintain a policy normalization approach.

Economic Outlook and Tariff Impact

Governor Ueda conveyed confidence in the Japanese economy’s ability to withstand downward pressures from tariff policies. He stated that the mechanism by which wages and prices rise slowly,while referring to each other,will not be interrupted. While acknowledging that the impact of tariff policy could exceed initial expectations, he emphasized that the buds continue to grow toward achieving the BOJ’s 2% price stability target.

Monetary Policy stance

Despite a period of stagnation in the basic inflation rate,which is a key factor in policy decisions,Governor Ueda maintained that the overarching trend points toward a gradual increase to 2%,aligning with previous forecasts. He reiterated the BOJ’s policy to adjust the degree of monetary easing by raising interest rates if the situation evolves as projected.

Although the basic inflation rate, which is emphasized in policy decisions, has been stagnant for some time, the major trend that gradually increases towards 2% is the same as the outlook for the past. If the situation rises in line with the outlook, it has reiterated its policy to adjust the degree of monetary easing by hiking interest rates.

Market Reaction and Future Considerations

Concerns about a potential slowdown in both domestic and international economies due to tariffs lead the BOJ to maintain its current monetary policy at the May 1st meeting. This decision tempered market expectations for imminent interest rate hikes. However, Governor Ueda’s recent remarks, emphasizing the japanese economy’s capacity to sustain growth despite tariff-related headwinds and the gradual rise of wages and prices, suggest a continued openness to future interest rate increases.

however, Governor Ueda also cautioned that unforeseen developments in tariff policy negotiations could substantially alter the economic outlook, presenting both upside and downside risks. He stressed the high degree of uncertainty surrounding the future trajectory and impact of tariff policies. He stated,We will carefully check the economic and price situations in both domestic and international markets,as well as trends in financial markets,and make decisions without prejudice, regarding whether the current outlook will materialize.

Government Bond Purchases

The BOJ is scheduled to discuss the interim evaluation of its government bond purchase reduction plan for January-March 2026 at its upcoming meeting on the 16th and 17th of this month. This plan, initially decided in July of last year, also includes the purchase policy for April of the same year and beyond. The current plan aims to reduce purchases by approximately 400 billion yen per quarter from the 5.7 trillion yen level at the end of July last year, targeting around 2.9 trillion yen per month from January to March next year.

Governor Ueda referenced the bond market participants meeting held on the 20th and 21st of last month, noting that many people have heard that it is appropriate to reduce the amount of government bond purchases from April next year, which the market is paying attention to. He also acknowledged that the recovery of the government bond market’s functionality is only half complete and highlighted various opinions emphasizing the need for a system that ensures flexibility.

Additional Remarks

• Even after potential agreements between the U.S. and China leading to significant tariff reductions, a strong sense of uncertainty persists.
• Government bond purchase plans from April 2024 onwards, and plans for a certain period, are under consideration.
• The expected effects of reducing government bond purchases and restoring market functions are reportedly being achieved.