BoJ’s Ueda: There are many issues that need to be better understood regarding inflation expectations

In response to supply-driven inflation, central banks' decision making faces the difficult dilemma between considerations of economic activity and the need to tackle surging inflation.

Increase in inflationary pressure has been caused by supply factors such as a rapid rise in commodity prices, labour shortages, and disruptions to supply chains.

Recent global inflation has also been influenced by demand factors, including the effects of expansionary fiscal and monetary policy measures and the pent-up demand after the spread of pandemic.

In light of these points, it is extremely important to carefully analyse various indicators and examine the underlying trend in prices.

Market participants, firms, and households all have different expectations formation, given different perceptions of current inflation.

Inflation expectations are susceptible to the influence of their experience or psychological conditions, as well as to the central bank's communication.

It may be difficult to deny the possibility that we are already in a new normal that is different from the period of 'low for long' inflation.

As a result of increases in the variety of tool kits and also advances in monetary policy making, central banks need to be more careful about how they communicate.

In scheduled policy review, BoJ will review the interaction between measures it took and economic activity, prices, and financial conditions, and the positive effects and the side effects, drawing on the knowledge in Japan and abroad.