Bank of Japan Governor Kazuo Ueda told parliament on Monday that underlying inflation is now “quite close” to the central bank’s 2% target, with strong global demand for AI-related goods and services adding to price pressures already stemming from a tight labor market. Ueda stressed that it is becoming increasingly important to firmly anchor inflation around 2%.
He noted that rising raw material costs linked to the conflict in the Middle East are contributing to higher prices, while demand-driven factors—such as robust employment conditions and an ongoing economic recovery—are also pushing inflation up. Ueda added that raising interest rates at an appropriate pace would help prevent sharp jumps in government bond yields and warned that failing to adjust monetary policy could fuel concerns about an inflation overshoot.
Responding to questions on fiscal policy, Ueda said that higher government spending would likely stimulate wages and prices in the short term, though measures that expand the economy’s supply capacity could help moderate inflation over the longer run.
His comments come ahead of the Bank of Japan’s policy meeting later this month, where new projections for growth and inflation will be scrutinized for clues on the timing and pace of future interest rate increases.
