Ueda Says Japan's Inflation Has Upside Risk, Won't Rule Out Unconventional Tools

Bank of Japan Governor Kazuo Ueda isn't ready to call Japan's inflation fight won. Speaking Friday at an International Monetary Fund seminar in Washington, Ueda said the central bank expects underlying inflation to hover around its 2% target — while conceding there are quote-unquote some upside risks lurking in the numbers. Energy-related products are starting to push consumer prices higher, and he sees that growth accelerating into early next year.

The wage picture, at least, is cooperating. Ueda described Japan as sitting in an equilibrium where pay is climbing at a pace consistent with 2% inflation. The catch: that 2% mark still hasn't hardened into a social norm in Japan, which is why the BOJ's current mission is anchoring underlying inflation firmly around target rather than declaring victory.

Ueda made clear he's not watching other central banks out of idle curiosity. He said the BOJ studies their moves, quote, very, very carefully — because their decisions ripple through asset prices, foreign exchange rates and interest rates. Their choices also telegraph what they think about their own economies, which feeds straight back into Japan's.

On the BOJ's unconventional toolkit, Ueda gave a mixed review. Those measures delivered some positive effects when deployed, he said, but they were never a perfect substitute for cutting interest rates from positive territory. If Japan gets hit by a severe enough shock, the central bank may be obliged to dust them off again.

If that day comes, Ueda wants to do it smarter. He said the priority would be minimizing the negative side effects — including any damage to how markets function — while keeping inflation as close to 2% as possible. For now, the watch item is straightforward: whether energy-driven price growth keeps building into the new year.

The comments landed via Reuters, with the IMF seminar putting Ueda in front of a global audience at a moment when every major central bank is being read for its next move.