Bank of Japan (BoJ) Governor Kazuo Ueda announced that they predict that the basic trend of inflation will remain around 2 percent, but that they are aware of some upward risks.
Ueda made important evaluations regarding Japan's current account surplus and institutional adjustment processes at the Michel Camdessus Central Banking Conference organized by the International Monetary Fund (IMF).
Stating that Japan's current account balance has undergone a serious change over the years, Ueda said that the country has constantly had a current account surplus since the early 1980s and that this surplus has remained between 2 and 4 percent of the Gross Domestic Product (GDP) for 40 years. Pointing out that the goods trade surplus, which exceeded 4 percent of GDP in the 1980s, turned into a deficit over time, Ueda emphasized that income from foreign investments became the main source of the current account surplus. Ueda stated that this process moved Japan from the position of "the production workshop of the world" to the position of "financier of the world".
Reminding that Japanese companies have mainly directed their resources to foreign investments since the late 1990s, the BOJ Governor stated that domestic investments have recently increased again due to factors such as labor shortage, decarbonization and digital transformation.
Answering the questions of IMF President Kristalina Georgieva after the conference, Ueda stated that the main goal of normalizing monetary policy in Japan is price stability and that achieving this goal will support the effective distribution of resources.
Reminding that at the last meeting of the BoJ, it was announced that the basic trend of inflation had reached 2 percent for the first time in decades, Ueda said, "This is an important turning point, but there is still a lot of work to be done. We must maintain this level in the coming years with appropriate adjustments in monetary policy."
Ueda said that the 2.5 to 3 percent increase in basic wages in Japan is compatible with the inflation target, but underlined that 2 percent inflation has not yet become a social norm. Stating that the increase in energy prices has begun to be reflected in consumer prices, Ueda warned: "The increase in consumer prices is currently around 3 percent and is expected to increase further until the beginning of next year." Stating that they predict that inflation will return to 2 percent in 2027-2028, assuming the conflicts in the region end, Ueda said, "We expect the basic trend of inflation to remain around 2 percent, but we are also aware of the upward risks."
Ueda also stated that they closely follow the decisions taken by other central banks, and that these decisions directly affect asset prices and therefore the Japanese economy.
Evaluating the effects of artificial intelligence investments on the Japanese economy, Ueda stated that this technology creates a positive demand by increasing exports, production and partly prices. However, Ueda pointed out that the effects of artificial intelligence on employment in the long term are uncertain and said:
"There are concerns that artificial intelligence will replace the workforce. General labor demand may decrease, but Japan, which has a serious labor shortage, may benefit from this situation. On the other hand, Japan may have difficulty due to rigidities in the labor market, because in order for artificial intelligence to be used efficiently, the workforce must be redistributed flexibly."
Finally, drawing attention to cyber risks to financial stability, Ueda added that there has been a sharp increase in cyber attacks in Japan in recent months.
