Bank of Japan Governor Kazuo Ueda addressed the Meeting of Councillors of Keidanren (Japan Business Federation) in Tokyo on Thursday, 25 December 2025, in a speech titled “Toward the Achievement of the Price Stability Target Accompanied by Wage Increases.”

Ueda highlighted that Japan’s underlying inflation is gradually accelerating and steadily approaching the BOJ’s 2% target. This trend supports the case for further interest rate increases as economic conditions improve.

He emphasised that the tight labour market is expected to persist unless there is a significant economic shock. Structural factors such as Japan’s declining working-age population are contributing to ongoing labour shortages, which in turn put sustained upward pressure on wages.

The governor noted that companies are increasingly passing on higher labour and raw-material costs to consumers—not just in food prices but across a broader range of goods and services. This trend indicates that Japan is finally experiencing a virtuous cycle where wages and prices rise together, a dynamic the Bank of Japan has long sought to establish.

Ueda stated, “Amid tightening labour market conditions, firms’ wage- and price-setting behaviour has changed significantly in recent years,” and added that the achievement of the 2% inflation target, accompanied by wage growth, is steadily approaching.

Despite this, real interest rates remain deeply negative. Ueda reiterated that the BOJ is prepared to continue raising rates if the central bank’s baseline economic and inflation outlook materialises. However, any policy adjustments will be made in response to economic and inflation developments rather than following a predetermined path.

By adjusting the level of monetary accommodation, the BOJ aims to both secure its inflation target smoothly and support sustainable, long-term economic growth. This signals growing confidence that Japan’s move away from ultra-easy monetary policy is becoming more durable.

Original Source: Eamonn Sheridan of investinglive.com