BOJ Governor Warns Higher Food Prices Could Affect Inflation Expectations

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Bank of Japan Governor Kazuo Ueda stated on Wednesday that the central bank will adjust its monetary policy while considering the risks posed by persistent high food prices, which may affect inflation expectations.

Ueda acknowledged the significant impact of price increases on everyday items, like fresh food, saying, "We are acutely aware that price hikes of more than 2% for commonly purchased goods, such as fresh food, are negatively affecting people's lives." He also pointed out that the rising prices, particularly for food, might not be temporary and could influence consumer expectations about future prices.

His comments came after the BOJ raised short-term interest rates to 0.5% last month, a level not seen in Japan for 17 years. This move highlighted policymakers’ confidence that the economy is on track to achieve sustained, wage-driven price growth.

In December, Japan's overall consumer price index (CPI) rose by 3.6% year-on-year, outpacing the 3.0% rise in the core index, which excludes volatile fresh food prices. The inflation spike was largely driven by higher fresh vegetable and rice prices.

While Ueda expects the cost-push inflation pressures to ease by mid-year, he emphasized that the BOJ is focused on underlying inflation—ignoring one-off factors like fuel and volatile food costs—when assessing whether inflation will consistently meet its 2% target.

Ueda also confirmed that the BOJ will review its plan for tapering government bond purchases in June and introduce a new plan for the period beginning April 2026. The bank previously announced plans to reduce its monthly bond purchases to 3 trillion yen ($19.52 billion) by January-March 2026.

"We are implementing our bond tapering plan with a focus on predictability and flexibility to ensure stability in the bond market," he added.

($1 = 153.7100 yen)

 

 

Paraphrasing text from "Reuters" all rights reserved by the original author