[PRESS CONFERENCE] BoJ Governor Ueda says Japan’s economy is recovering moderately, albeit with some weakness; Japan’s economy is likely to continue growing moderately

MONETARY POLICY BoJ judged it appropriate to adjust the degree of monetary easing to sustainably and stably achieve the 2% price target. Easy monetary conditions are expected to be maintained, firmly supporting the economy. BoJ will continue to raise the policy rate and adjust the degree of monetary easing in response to developments in economic activity, prices and financial conditions. BoJ will consider the timing and pace of adjustments while looking at the likelihood of achieving its economic and price outlook baseline scenario. BoJ believes the phase of policy has changed. Ueda says it is becoming more important to stably achieve the 2% inflation target. BoJ is not considering hiking rates at a specific time and will assess risks at each meeting. Difficult to say where the terminal rate should be. Terminal rate would be determined retrospectively. Financial conditions are still accommodative as a whole. The degree of easing is diminishing. Change in policy phase means that the purpose of the policy objective is now to stabilise underlying inflation at around 2%. It does not mean that we cannot take next policy steps unless we observe it for a long time. Difficult to judge whether financial conditions are overly accommodative. Will look at financial conditions, including the accumulated impact of past rate hikes. RATE HIKES BoJ needs to avoid negative effects caused by drastic rate hikes. BoJ is not ruling out any particular policy measures. Ueda says there are various possibilities depending on inflation when asked about the possibility of a 50bps or consecutive rate hike. Overseas rate hikes could impact Japan through various channels, including FX. BoJ is at a stage where it must analyse carefully, but that does not mean it should proceed slowly. Big or consecutive rate hike would mean there was high risk of overshooting. Whether conditions would still accomodative after a rate hike to 1.5% will be judged by financial variables at the time. Hopes to act pre-emptively to avoid such drastic action. Difference in view between board members is neutral. MARKETS Does not comment on short-term market moves. Rates have tightened, but bank lending and asset markets remain accommodative. INFLATION Underlying inflation is approaching 2%. BoJ must pay attention to the impact of the Middle East situation, AI-related demand expansion and FX on Japan’s economic activity and prices. There is a risk of underlying inflation overshooting the 2% price target given firms’ wage and price-setting behaviour is becoming more aggressive and medium- and long-term inflation expectations are rising. Stabilising underlying inflation at around 2% is important. BoJ must be vigilant to upside risks to inflation, including the Middle East situation. Price pressures stemming from higher crude oil prices are expected to spread to a wide range of items. BoJ wants to see whether trend inflation stays at 2% after reaching around that level at the end of FY2026 into FY2027; wants to see whether underlying inflation stabilises at around 2%. As long as upside risks remain within the price target range, it is not a problem, but an overshoot would be a problem going forward. WAGES BoJ is paying attention to FY2027 wage talks. Spring wage negotiations in FY2027 will be key in determining whether trend inflation stabilises. Wage data shows solid improvement following the spring wage talks. FINANCIAL CONDITIONS Japan’s financial conditions have been accommodative. MIDDLE EAST Middle East situation continues to be uncertain. The second phase of price rises due to the Middle East crisis is now occurring. Uncertain whether the pipeline disruption in Saudi Arabia will be prolonged and the BoJ wants to pay close attention to it. Risks regarding the Middle East situation are worsening. BOARD MEMBERS Today’s vote count was the result of constructive discussions among board members. BoJ will not conduct monetary policy with concerns over what kind of members will join the board. GOVERMENT Important to closely coordinate with the government. BoJ will continue to conduct appropriate monetary policy in line with the law governing the BoJ. BoJ has been communicating with the Takaichi administration at various levels. BoJ is closely communicating with the Takaichi administration. Does not comment on fiscal policy. FX: Not conducting monetary policy to control FX levels. Whether to raise rates consecutively depends on the economic outlook and our view on risks. Generally speaking, long term rates should be determined by economic strength and inflation trends.