BOJ chief Ueda sees ‘some upside risks’ to inflation

Ueda said the Bank of Japan expects underlying inflation to remain around its 2% target but recognizes “some upside risks.” Energy-related price increases are beginning to affect consumer inflation, with price growth seen accelerating further into early next year. He said wages are growing at a level consistent with 2% inflation, while the target has yet to become a social norm in Japan.

Ueda said the BOJ monitors other central banks’ actions because they affect asset prices, including foreign exchange and interest rates. He said unconventional policy tools had some positive effects when deployed but were not perfect substitutes for cutting interest rates from positive territory. The BOJ may use such tools again depending on the severity of a shock, while seeking to limit negative effects, including on market functioning.

Ueda said AI advances had provided a positive demand shock for Japan, and that AI replacing labor could benefit a country facing significant labor shortages. IMF Managing Director Kristalina Georgieva said concerns about reliance on the AI investment boom and high valuations were affecting markets, while volatility could complicate central banks’ work. Ueda also raised cyber risks to financial stability, saying some small banks and firms had not done enough to guard against them.