Bank of Japan Governor Kazuo Ueda stated that the central bank will conduct monetary policy in a manner that ensures it does not fall behind the curve, as underlying inflation approaches the 2% target level. The remarks come as Japan nears what would be a sustained achievement of the BOJ's price goal after decades of deflationary pressure, a milestone that has eluded the central bank since it adopted its 2% target in 2013.

Speaking on the economic outlook, Ueda indicated that the BOJ will hold careful discussions at its next meeting, particularly regarding the risks of inflation overshooting more than in the past. He noted that the central bank does not need to wait until data shows complete stabilization of inflation at the 2% level before making policy changes.

"Underlying inflation is approaching the 2% level, so we can't ignore the risks of it overshooting that," Ueda said.

The governor outlined several factors the BOJ plans to analyze at its next meeting, including the Middle East situation, AI demand, foreign exchange developments, and their respective impacts on the Japanese economy. The yen's level has been a persistent consideration for policymakers, as currency weakness both feeds imported inflation and complicates the calibration of monetary policy.

On fiscal matters, Ueda described the lower sales tax rate as a positive development for real income growth. He also emphasized the importance of the government ensuring market confidence in long-term fiscal soundness. Regarding potential increases in bond purchases, Ueda said it would not be appropriate to comment beforehand.

The BOJ's overall approach remains largely unchanged. The central bank continues to keep the door open for another rate hike, though prevailing timing and conditions have complicated that path. The BOJ remains the only major central bank still maintaining accommodative policy settings after the Federal Reserve and the European Central Bank moved aggressively to tighten over previous years.

The bank has faced a series of challenges over the past two years. Takaichi's appointment as prime minister initially served as a setback, prompting the BOJ to act hastily before the end of last year. Subsequently, the US-Iran conflict introduced an unexpected complication, leading policymakers to delay decisions until after the spring wage negotiations — Japan's largest annual wage-setting round, which shapes the income side of the inflation dynamics the BOJ is monitoring.

While those circumstances eventually allowed the BOJ to adjust policy again, difficulties have persisted into the second half of 2026. Price pressures continue to build, now accompanied by the unfavorable mix of cost-push inflation, which is driven by rising import and energy costs rather than domestic demand strength. Additionally, downside risks to the economy remain elevated as energy prices stay high amid the ongoing Middle East conflict.