Bank of Japan chief Kazuo Ueda on Thursday expressed confidence in the price outlook, indicating that Japan is experiencing inflation, not deflation, as wage growth is expected to support the upward momentum.
Speaking in parliament, Ueda noted that the effects of higher import costs have been wearing off but service prices have been rising against a backdrop of pay hikes, a positive development for the BOJ to achieve its 2 percent inflation goal.
Financial markets are fixated on when the BOJ will end its negative interest rate policy. Expectations have heightened that the Japanese central bank will make a shift from years of ultraloose monetary policy designed to enable Japan to completely break with deflation that has plagued the nation for decades.
"We expect an upward trend similar to the one seen until last year. In this sense, we are in a state of inflation, not deflation," Ueda told a session of the lower house budget committee.
He made the remarks after inflation in Tokyo undershot 2 percent in January for the first time since May 2022. Core consumer prices, which exclude volatile fresh food, rose 1.6 percent from a year earlier in the Japanese capital. The Tokyo figure is seen as an indicator of what to expect nationwide.
The BOJ chief stressed the need for looking at price developments over "a year and a half or two years," when monetary policy decisions are made, saying that underlying inflation is "beginning to rise."
"With labor market conditions tight, companies have become more proactive in setting wages. Going ahead, a virtuous cycle in which employment and wages increase while prices also rise moderately is expected to strengthen," Ueda said.
The BOJ maintains wage growth is crucial for its inflation target to be achieved. It is closely watching the outcome of wage negotiations between labor unions and management that will culminate in March.
The Japanese central bank currently sets its short-term interest rate at minus 0.1 percent though it allows 10-year Japanese government bond yields to rise above 1.0 percent.
