Bank of Japan's Inflation Target Amid Climate Change

By Leika Kihara

TOKYO (Reuters) – The Bank of Japan (BOJ) aims to maintain its 2% inflation target despite potential long-term shocks from climate change, according to Governor Kazuo Ueda on Saturday.

Ueda emphasized that the BOJ will "monitor carefully" the economic impacts of climate change and government measures for a greener transition on inflation expectations.

"We would like to keep the inflation target at the current level" even with climate shocks, Ueda stated during a conference in Basel, which was streamed live on YouTube. "But I of course worry what it will do to inflation expectations."

Japan is likely to implement a carbon tax in the future, affecting inflation expectations, Ueda added during the conference focused on climate change's impact on the economy and monetary policy.

Government subsidies for a green transition may create short-term inflationary pressure, although Japan can "accommodate such inflationary forces for a while," as underlying inflation is below 2%, Ueda noted.

Under its green transition strategy, the Japanese government will provide 20 trillion yen ($131 billion), roughly 3% of the country's GDP, to support companies investing in environmentally-friendly technology over the next decade.

In the strategy's second phase, the government plans to introduce carbon pricing and a fully operational emissions trading system by fiscal 2026, along with a fossil fuels surcharge by fiscal 2028.

This conference was co-organized by the Bank for International Settlements, the BOJ, the Bank of Spain, and the Network for Greening the Financial System.

($1 = 152.6300 yen)