BOJ's Ueda says bank won't tolerate inflation rising above 2%; IMF says faster hikes may be needed

Bank of Japan (BOJ) Governor Kazuo Ueda said the central bank will focus on keeping underlying inflation anchored around its 2% target and will not tolerate an overshoot, Reuters reported.

“As underlying inflation is roughly near our 2% target, we cannot tolerate inflation from accelerating further,” Ueda told a news conference in Bangkok on Friday 16 October, where he was attending the International Monetary Fund (IMF) and World Bank annual meetings. He said the BOJ would continue to raise interest rates in response to economic and price developments, with the timing and pace depending on market moves, exchange rates and risks to the outlook, Kyodo reported. Ueda said economic data since the BOJ’s September meeting had been broadly in line with its forecasts.

Krishna Srinivasan, director of the IMF’s Asia and Pacific Department, told Reuters the BOJ was “doing the right thing” by normalising policy. “If inflation rises faster than expected, you have to start tightening faster because you don’t want inflation expectations to get un-anchored,” he said. He also said Japan should set out how it will fund its spending plans.

The BOJ raised its policy rate to 1.25%, a 31-year high, in September, following a rise in June, Reuters reported. Sources told Reuters many BOJ policymakers prefer to keep rates steady at the 29-30 October meeting, and that the board will publish new growth and inflation forecasts then. Reuters said a weak yen is adding to inflation by raising the cost of imported raw materials.