Ueda: Core Inflation to Stay Near 2% as Energy Risks Push Prices Higher
Key Facts
Bank of Japan Governor Kazuo Ueda said in remarks delivered in Washington on November 6 that the bank expects core inflation to remain around its 2% target, but sees some upside risks. Rising prices for energy-related products have begun feeding into consumer inflation, Reuters quoted Ueda as saying. He added that price growth could accelerate further through early next year. That puts energy costs at the center of the bank’s assessment of the inflation outlook over the coming months. In its October report, the bank raised its median forecast for inflation in fiscal 2026 to 2.5%, from 2.3% in its July forecast, and said inflation outlook risks were skewed to the upside.
Ueda linked the durability of inflation to wage developments, saying wage growth was running at a level consistent with 2% inflation. But he noted that the bank’s 2% target had not yet become a social norm in Japan. This distinction means that current wage growth’s consistency with the target alone does not settle how firmly inflation expectations are embedded among households and businesses. September data showed consumer prices excluding fresh food rose 2.1% year on year. The increase was 2.4% when fresh food and energy were excluded, according to Japan’s Statistics Bureau.
September data and October forecasts reflect an inflation picture that exceeds the bank’s target on some measures, while Ueda expects core inflation to remain around the target more broadly. The Bank of Japan said in its report that medium- and long-term inflation expectations could rise, potentially pushing core inflation above its price stability target. Energy costs remain a direct channel of pressure, as rising prices for energy-related products have begun appearing in consumer inflation. Ueda estimated that price growth was likely to accelerate through early next year, without specifying a figure for that acceleration in his remarks. That makes the pass-through of energy costs to prices a factor the bank is monitoring in light of its forecasts and their upside risks.
Ueda said the Bank of Japan is closely monitoring decisions by other central banks because they affect asset prices, including exchange rates and interest rates, and may have implications for Japan’s economy. He said these variables inform the bank’s monitoring of the economic and financial conditions surrounding Japan. The remarks provided no details of a specific move in exchange rates or interest yields. He also said the bank might have to use unconventional monetary tools again, depending on the severity of the economic shock. He added that such tools should be designed with a view to limiting their adverse effects on market functioning.
Ueda also addressed AI’s impact on Japan’s economy, saying rapid developments in the field had created a positive demand shock. He added that AI replacing workers could suit an economy facing a severe labor shortage, while supply-side factors also need to be studied. On financial risks, he warned of cybersecurity threats to financial stability. He said some small banks and small companies had not done enough to protect against those risks. These issues were part of a speech delivered in Washington on November 6 and published by the Bank of Japan the following day, during the Michel Camdessus Central Banking Lecture.
Attention turns on November 10 to the summary of opinions from the Bank of Japan’s October 29-30 meeting, which is typically scheduled for release at 8:50 a.m. Japan time. On the same date, household spending data for September and the third quarter are due, according to the Japan Statistics Bureau’s calendar. Fourth-quarter data and the 2026 annual average are scheduled for February 5, 2027. These upcoming releases provide further indicators of monetary policy debate and domestic spending after Ueda’s remarks on inflation, wages and energy. The summary of opinions and household spending data were listed on the calendar for November 10, not November 9.