Bank of Japan Normalizing Policy to Achieve Price Stability: Ueda

The Bank of Japan is normalizing monetary policy to achieve price stability, Governor Kazuo Ueda said Friday, with underlying inflation at 2 percent for the first time in many decades.

Mr. Ueda was speaking at the International Monetary Fund, where he had just delivered the Michel Camdessus Central Banking Lecture and then taken questions from its managing director, Kristalina Georgieva. A week earlier, his bank had held its benchmark rate at around 1.25 percent on an 8-to-1 vote, following increases in June and September. Ms. Georgieva called the process of normalization “impressively smooth” so far. The yen was quoted at about 157.5 to the dollar on Oct. 30, according to Federal Reserve data.

The work is not done, he said. Underlying inflation is the bank’s gauge of the trend in prices. Wages are growing 2.5 to 3 percent, a pace he called consistent with 2 percent inflation, but he said he does not know whether the economy can stay there for a very long time. Higher energy prices, which Ms. Georgieva tied to a war in the Middle East, are beginning to reach consumers, Mr. Ueda said, and consumer price inflation, now around 3 percent, is expected to rise further into early next year. He did not rule out a return to the unconventional tools the bank once used on a massive scale if shocks prove severe enough.

The bank began moving away from those tools on March 19, 2024, when, under Mr. Ueda, it ended its negative interest rate policy and its yield curve control, which had held down long-term government bond yields. The decision closed a 17-year stretch without a rate increase, during which Japan struggled with deflation or very low inflation. The country escaped that trap partly because of the global inflation surge of 2021 to 2023.