By Megumi Fujikawa
NAGOYA, Japan- Governor Kazuo Ueda suggested on Monday that the Bank of Japan is unlikely to abolish negative interest rates in the immediate term. This is due to uncertainty surrounding the outlook for consumer prices and wages.
According to Ueda, it is theoretically possible to abolish the negative-rate policy at any meeting. However, with less than two months left in the year, it is unclear if this will happen. Ueda noted that the possibility is not zero.
The bank intends to continue with the negative interest rate and yield curve control until it sees a sustainable and stable achievement of its 2% inflation target.
Ueda expressed uncertainty about when the bank can be confident in achieving their inflation target. He explained that they are still not sure if smaller companies will be able to raise wages next year, as some of them provided raises this year despite low profitability.
Despite these challenges, Ueda believes Japan is making progress toward stable inflation. He mentioned that the inflation rate will not go back to pre-pandemic levels of 0% to 1%. This is because the virtuous cycle between wages and prices is expected to strengthen, even after the pressure from higher import prices eases.
In its quarterly outlook report, the bank projected that consumer prices (excluding fresh food) will rise 2.8% in the year ending March 2025 and 1.7% in the following year.
Overall, the Bank of Japan will maintain its current policy for the time being, focusing on achieving their inflation targets and navigating economic uncertainty.
Write to Megumi Fujikawa for more information.