BoJ’s Uchida: Japan’s economy has recovered moderately
Bank of Japan Deputy Governor Shinichi Uchida said on Wednesday that Japan's economy has recovered moderately, although some weakness has been seen in parts.
Key quotes
Japan's economy has recovered moderately, although some weakness has been seen in parts.
Japan's economic growth is likely to moderate due to the effects of trade and other policies.
Uncertainty surrounding trade policies remains extremely high.
It is important to maintain loose monetary policy to support the economy.
We expect to raise interest rates in line with economic and price improvements, if our scenario is realised.
We will judge whether the economy and prices move in line with our forecast without any pre-set idea.
It is likely that Japan's economic growth will moderate and underlying inflation will be sluggish temporarily.
It is hard to say from current data how trade talks will turn out, or which direction domestic and overseas economies and markets will move.
Overseas and Japanese economies appear to be at a critical point, with very high uncertainty.
Economic uncertainties are likely to act as downside risks to inflation.
Cost-push factors are pushing up inflation, mainly for food prices.
There are high uncertainties over Japan's economy, and risks are skewed to the downside.The direct impact of U.S. tariff hikes on Japanese firms is likely to first appear in export profitability or export volume.
We will scrutinise how such downside and upside risks affect our price outlook via corporate wage and price-setting behaviour.
We must adjust monetary policy to best balance upside and downside risks from the perspective of maintaining economic and price stability.
The BoJ aims to take an orthodox, robust monetary policy approach, especially because uncertainty is extremely high.
It is important to firmly support economic activity by maintaining accommodative financial conditions.
Large-scale monetary easing was a necessary policy, but there is no such thing as a free lunch.
Only when the BoJ makes a successful exit can it be judged that our monetary easing had a positive effect on Japan's economy.
Market reaction
At the press time, the USD/JPY pair is down 0.02% on the day to trade at 146.58.
Bank of Japan FAQs
The Bank of Japan (BoJ) is the Japanese central bank, which sets monetary policy in the country. Its mandate is to issue banknotes and carry out currency and monetary control to ensure price stability, which means an inflation target of around 2%.
The Bank of Japan embarked in an ultra-loose monetary policy in 2013 in order to stimulate the economy and fuel inflation amid a low-inflationary environment. The bank’s policy is based on Quantitative and Qualitative Easing (QQE), or printing notes to buy assets such as government or corporate bonds to provide liquidity. In 2016, the bank doubled down on its strategy and further loosened policy by first introducing negative interest rates and then directly controlling the yield of its 10-year government bonds. In March 2024, the BoJ lifted interest rates, effectively retreating from the ultra-loose monetary policy stance.
The Bank’s massive stimulus caused the Yen to depreciate against its main currency peers. This process exacerbated in 2022 and 2023 due to an increasing policy divergence between the Bank of Japan and other main central banks, which opted to increase interest rates sharply to fight decades-high levels of inflation. The BoJ’s policy led to a widening differential with other currencies, dragging down the value of the Yen. This trend partly reversed in 2024, when the BoJ decided to abandon its ultra-loose policy stance.
A weaker Yen and the spike in global energy prices led to an increase in Japanese inflation, which exceeded the BoJ’s 2% target. The prospect of rising salaries in the country – a key element fuelling inflation – also contributed to the move.
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