TOKYO (Kyodo) -- Bank of Japan Gov. Kazuo Ueda said Monday that Japanese companies have become more proactive in setting prices and wages, and the likelihood of attaining the central bank's 2% inflation target is "gradually rising."
Ueda's remark comes less than one week after the BOJ decided to stick to its ultralow interest rate policy but decided to allow yields on long-term government bonds to rise above a previously rigid ceiling of 1%.
In a speech to business leaders in Aichi prefecture, central Japan, Ueda acknowledged he could not foresee the stable and sustainable achievement of the inflation target "with sufficient certainty."
"It is necessary to closely examine whether changes in firms' wage- and price-setting behavior will become widespread and the virtuous cycle between wages and prices will intensify," Ueda said.
The BOJ's "basic thinking on the conduct of monetary policy is that it will patiently continue with monetary easing under the framework of yield curve control, aiming to support Japan's economic activity and thereby facilitate a favorable environment for wage increases," he added.
Under the yield curve control program, short-term interest rates are set at minus 0.1% and 10-year yields are guided to around zero percent.
The latest tweak to the program was the strongest signal yet that the dovish central bank is also preparing to unwind the massive monetary stimulus that it has pursued over a decade or so when the inflation goal comes into view.
While 10-year yields will be allowed to rise further to reflect economic fundamentals, Ueda reiterated he does not expect them to rise significantly above 1%.
"The bank will continue with large-scale [bond] purchases," he said, "and in a phase of rising interest rates will keep making nimble responses through market operations depending on factors such as the levels and the pace of change in long-term interest rates."
