Bank of Japan Governor Kazuo Ueda stated on Wednesday that escalating uncertainties in both the domestic and international economic landscapes are attributable to U.S. tariffs. The Bank of Japan will closely observe these developments. Key points included the persistence of low interest rates despite strengthening inflation, an indication of overly accommodative policy. Ueda highlighted uncertainties regarding tariff forecasts and affirmed the Bank’s commitment to carefully monitoring and appropriately addressing the effects of tariffs through policy adjustments. He emphasized ongoing close coordination with the government and vigilance regarding prices, the economy, and financial markets. Market reaction saw the USD/JPY pair trading 0.56% lower at 145.45 at the time of writing. The Bank of Japan (BoJ), Japan’s central bank, is responsible for issuing banknotes and implementing monetary policy to maintain price stability, targeting approximately 2% inflation. The BoJ initiated an ultra-loose monetary policy in 2013 to stimulate the economy and foster inflation amid a low-inflation environment, employing Quantitative and Qualitative Easing (QQE) through asset purchases. In 2016, the bank intensified its strategy by introducing negative interest rates and directly controlling the yield of 10-year government bonds. This ultra-loose policy was effectively abandoned in March 2024 when the BoJ raised interest rates. The BoJ’s stimulus measures previously contributed to Yen depreciation, particularly exacerbated by policy divergence with other central banks in 2022 and 2023. The resulting interest rate differentials widened, further devaluing the Yen. This trend partially reversed in 2024 with the shift away from the ultra-loose policy. The decision to unwind the ultra-loose policy was driven by a weaker Yen, rising global energy prices, and increasing Japanese inflation exceeding the 2% target, coupled with the prospect of rising salaries.
