New Bank of Japan Governor Kazuo Ueda speaks at a news conference at the bank headquarters in Tokyo
New Bank of Japan Governor Kazuo Ueda speaks at a news conference at the bank headquarters in Tokyo, Japan, April 10, 2023. Reuters

Bank of Japan Governor Kazuo Ueda said on Wednesday the central bank must pay more attention to the risk of failing to meet its 2% inflation target with premature monetary tightening, rather than being behind the curve in combating too-high price growth.

While other countries are experiencing elevated inflation, the situation is "quite different" in Japan, Ueda said in Japan's G7 chair briefing with Finance Minister Shunichi Suzuki.

"I don't deny it as a possibility," Ueda said when asked by a reporter whether Japan could risk being behind the curve in addressing the risk of too-high inflation by keeping monetary policy ultra-loose for a prolonged period.

"But the BOJ must pay more attention to (the risk of) failing to achieve 2% inflation" with a premature end to easy policy, rather than that of a delay in raising interest rates, said Ueda, who is in Washington for his debut international meeting since assuming the post on Sunday.

Ueda said he explained to his counterparts at the Group of Seven (G7) meeting that the BOJ will continue its monetary easing until its 2% inflation target was met in a stable and sustainable fashion.

Japan remains an outlier among a global wave of central banks tightening monetary policy to combat soaring prices, as the BOJ focuses on supporting a fragile economy until durable increases in inflation and wages come into sight.

Markets, however, have been simmering with speculation the BOJ will phase out or end its controversial bond yield control policy under Ueda, due to the rising side-effects of prolonged easing such as the hit to bank profits.

Ueda's latest remarks, which follow reassurances he made on Monday to maintain yield curve control for now, suggest the BOJ may not overhaul the policy at this month's meeting.

At Wednesday's briefing, Ueda said G7 policymakers have taken appropriate steps to prevent contagion from recent U.S. and European banking-sector woes, though they needed to be vigilant to "elevated uncertainties."

"The Basel 3 (bank regulations) have not necessarily been implemented completely," he said. "We need to make sure these regulations are fully implemented."