Bank of Japan Governor Ueda says economy recovering moderately, some weak signs

Bank of Japan Governor Ueda in Nagoya to deliver a speech and take questions from business executives.

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In summary:

Economic Activity:

• Corporate Sector: Business sentiment has improved, with corporate profits on an upward trend. Firms maintain active investment stances, focusing on future growth areas such as digitalization and decarbonization.

• Household Sector: Private consumption shows a moderate increasing trend, supported by clear rises in nominal wages and summer bonuses.

• Overall Outlook: A virtuous cycle of rising income leading to higher spending is gradually intensifying, with real GDP projected to grow around 1% in the coming fiscal years.

Price Developments:

• Current Inflation: The year-on-year increase in the Consumer Price Index (CPI) for all items excluding fresh food was 2.4% in September 2024. While the impact of past import price rises has eased, services prices remain stable, indicating a shift in inflation drivers from cost-push factors to domestic wage increases.

• Outlook: The CPI is expected to continue rising moderately, with underlying inflation gradually increasing as the output gap improves and medium- to long-term inflation expectations rise.

Monetary Policy:

• Policy Adjustments: In July 2024, the Bank of Japan raised the policy interest rate to around 0.25% and outlined a plan to reduce Japanese government bond purchases, aiming for sustainable achievement of the 2% price stability target.

• Future Stance: The Bank plans to continue with gradual policy rate hikes, maintaining accommodative financial conditions to support economic activity.

Governor Ueda emphasized the importance of a balanced approach to monetary policy, ensuring that adjustments are made cautiously to avoid economic shocks and to support the ongoing virtuous cycle between wages and prices.

Q&A follows at 1.45 pm local time on Monday

• 0445 GMT (Monday), 2345 US Eastern time (Sunday)

Perhaps we will get better clues on near term monetary policy from this. The Bank next meet in December 18 -19.

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This article was written by Eamonn Sheridan at www.forexlive.com.