Kazuo Ueda: Toward the achievement of the price stability target accompanied by wage increases
Central bank: boj | Type: speech | Date: 2025-12-30

December 25, 2025
Toward the Achievement of the Price Stability Target
Accompanied by Wage Increases
Speech at the Meeting of Councillors of Keidanren
(Japan Business Federation) in Tokyo
UEDA Kazuo
Governor of the Bank of Japan
(English translation based on the Japanese original)
Bank of Japan
Introduction
It is a great honor to have this opportunity to address such a distinguished gathering of
business leaders in Japan today.
2026 is now just a week away. Looking back over the past twelve months, Japan's economy
has shown resilience, having continued to recover moderately despite downward pressure
on corporate profits stemming from the impact of U.S. tariff policies. Against this backdrop,
at the Monetary Policy Meeting (MPM) held last week, the Bank of Japan decided to raise
the policy interest rate for the first time since January this year. In this re gard, I would like
to begin my speech today by briefly explaining the background to the policy change. I
would then like to share with you an outline of the state of the economy the Bank is aiming
for and, on that basis, set out my hopes for business leaders in Japan.
I. Recent Conduct of Monetary Policy: Raising the Policy Interest Rate
Let me start by talking about recent developments in economic activity and prices and the
Bank's conduct of monetary policy. In March 2024, the Bank judged it was within sight that
the price stability target of 2 percent would be achieved in a sustainable and stable manner,
and changed its large-scale monetary easing framework, which had lasted for over a decade.
The Bank thereby shifted its monetary policy to guiding the s hort-term interest rate as a
primary policy tool. Against this backdrop, the Bank gradually adjusted the degree of
monetary accommodation by raising the policy interest rate to around 0.25 percent in July
2024 and to around 0.5 percent in January 2025.
Thereafter, with uncertainties regarding U.S. tariff policies remaining high, the Bank kept
the policy interest rate unchanged. At last week's MPM, however, it decided to raise the
policy interest rate from around 0.5 percent to around 0.75 percent. In makin g this decision,
the key factors were developments in the U.S. economy and the impact of tariff policies as
well as moves to raise wages in light of next year's annual spring labor -management wage
negotiations.
First, as for the U.S. economy and the impac t of tariff policies, the Bank judged that, while
uncertainties remain ed, they ha d declined. Looking at the U.S. economy, with the
pass-through of tariff costs to selling prices remaining only moderate, private consumption
has been solid. Moreover, busines s fixed investment has increased, reflecting an expansion
in AI-related demand. In light of these developments, while there are still factors to consider,
such as developments in the labor market, it appears that downside risks to the U.S.
economy overall have decreased. With regard to the impact of tariff policies on Japan's
economy, although there has been downward pressure on corporate profits, mainly in
manufacturing, there are no signs that the effects have spread to the economy as a whole,
including business fixed investment and employment and wage developments. Please take a
look at Chart 1. The Tankan (Short-Term Economic Survey of Enterprises in Japan) released
last week indicates that business sentiment, shown in the left panel, has been at a favor able
level. Regarding corporate profits shown in the right panel, profit projections for fiscal 2025
have been revised upward slightly from the projections in the previous survey released three
months ago, including in manufacturing, suggesting that the un certainty surrounding the
outlook is gradually diminishing.
Looking at the background conditions of wage developments, labor market conditions have
continued to be tight, and corporate profits are expected to remain at high levels on the
whole, even after taking into account the impact of tariff policies, as I mentioned earlier. In
this situation, considering factors such as the stances of labor and management on the
annual spring labor -management wage negotiations and anecdotal information gathered
through the Bank's Head Office and branches, as shown in Chart 2, it is highly likely that
firms will continue to raise wages steadily next year, following the solid wage increases this
year, and the risk of firms' active wage -setting behavior being interrupted is expected to be
low. On the price front, underlying CPI inflation has continued to rise moderately, with
moves to pass on wage increases to selling prices continuing.
Based on these recent data and anecdotal information, it is highly likely that the mec hanism
in which both wages and prices rise moderately will be maintained next year and beyond.
As a result, it appears that the likelihood of realizing the Bank's baseline scenario has been
rising -- that is, underlying CPI inflation will be at a level that is generally consistent with
the price stability target of 2 percent in the second half of the projection period of the
October 2025 Outlook for Economic Activity and Prices (Outlook Report), which extends
from the second half of fiscal 2026 through fiscal 2027. In view of these developments in
economic activity and prices, the Bank, at the MPM held last week, judged it appro priate to
raise the policy interest rate and adjust the degree of monetary accommodation from the
perspective of sustainable and stable achievement of the price stability target of 2 percent.
As for the future conduct of monetary policy, given that real i nterest rates are at
significantly low levels, if the baseline scenario presented in the October Outlook Report is
realized, the Bank, in accordance with improvement in economic activity and prices, will
continue to raise the policy interest rate and adjus t the degree of monetary accommodation.
The Bank believes that adjusting the degree of monetary accommodation as appropriate will
lead to smoothly achieving the price stability target and to long -term growth that can serve
as a foundation for firms to cond uct business with confidence. In what follows, I will talk
about the state of the economy the Bank is aiming to achieve from a somewhat long -term
perspective.
II. An Economy in Which Both Wages and Prices Rise Moderately
A. The State of the Economy the Bank Is Aiming For
In line with the Bank of Japan Act, the Bank conducts monetary policy based on the
principle that the policy should be "aimed at achieving price stability, thereby contributing
to the sound development of the national economy." More spec ifically, at the January 2013
MPM, the Bank set a price stability target of 2 percent and, under this target, aims to
achieve an economy in which both wages and prices rise moderately.
Chart 3 is a simple illustration of this mechanism. Let me explain thi s chart considering
profits in the corporate sector as a starting point. If corporate profits increase as economic
activity gains momentum, business fixed investment and wages are expected to rise. Higher
wages, in turn, boost private consumption by way of raising household income. This
increase in demand leads to moderate price rises and, on the side of firms, to a rise in selling
prices and further improvement in corporate profits, which are then expected to once again
spur growth in business fixed invest ment and wages. For the economy to continue
expanding not only in nominal terms but also in real terms -- excluding the effects of
inflation -- it is important that labor productivity increase through, for example, proactive
investment by firms, and that such productivity gains be reflected in higher real wages.
The Bank projects that this mechanism, in which the cycle between wages and prices
operates, will function steadily; in other words, rather than a temporary rise in prices driven
mainly by cost -push factors, the Bank expects that a situation in which people engage in
economic activities on the assumption that moderate inflation will continue going forward,
resulting in the sustainable and stable achievement of the 2 percent price stability target.
This is the essential foundation for Japan's economy to continue to grow in the long term,
and we believe this is nothing other than the principle for the Bank's conduct of monetary
policy, namely that the policy should be "aimed at achieving price stabilit y, thereby
contributing to the sound development of the national economy."
B. Taking Stock of Where Japan's Economy Stands
Next, I would like to take stock of where Japan's economy stands in relation to the state of
the economy the Bank is aiming to achie ve. Please take a look at Chart 4. Over the past
decade, corporate profits have approximately doubled. In the labor market, with the
working-age population continuing to decline and the room for the additional labor supply
of seniors and women diminishing, labor market conditions have further tightened. 1
Against this background, as shown in Chart 5, wages -- which had been stagnant for many
years -- have come under upward pressure, resulting in high wage growth in recent years.
Reflecting these developments, together with the impact of post-COVID-19 global inflation
and the yen's depreciation, consumer prices have also continued to register positive growth.
Given that structural changes in Japan's labor market -- including the d ecline in the
working-age population -- are irreversible, barring a major negative shock to the economy,
it is expected that labor market conditions will remain tight and that upward pressure on
wages will continue. Moreover, with the inflation rate remain ing positive and inflation
expectations among households and firms continuing to rise, moves to pass on increases in
1 For a discussion on the structural changes in Japan's labor market, s ee Ueda, K., " Japan's Labor
Market under Demographic Decline: Evolving Dynamics and Macroeconomic Implications ,"
remarks at the panel on "The Policy Implications of Labor Market Transition" at the Jackson Hole
Economic Policy Symposium hosted by the Federal Reserve Bank of Kansas City, August 23, 2025.
wages and input prices to selling prices have steadily become widespread. Taking these
developments into account, the likelihood of Japan's economy returning to a so -called zero
norm state, in which wages and prices hardly change, seems to have decreased considerably.
Please turn to Chart 6. Looking at recent price developments, the year -on-year rate of
increase in the consumer price index ( CPI) for all items excluding fresh food has been at
around 3 percent. While this is largely a reflection of the effects of food prices, including
the price of rice, being pushed up by temporary cost -push factors, the continued
pass-through of wage increase s to selling prices , which I mentioned earlier , has led to a
moderate rise not only in food prices but also in the prices of goods and services. Chart 7
shows indicators related to underlying inflation, which excludes temporary factors. There is
no single indicator that pins down developments in underlying inflation. That said, the
indicators presented in Chart 7 together with factors that underlie price developments, such
as the output gap and labor market conditions, suggest that Japan's underlying inflation has
followed a moderate uptrend on the whole and is steadily approaching 2 percent.
When examining developments in profits and expenditures in the corporate sector, while
taking into account the current state of wages and prices in Japan, which I have mentioned
earlier, several challenges that need to be addressed to realize the state of the economy the
Bank envisions become evident. As shown in the left panel of Chart 8, looking back, since
the second half of the 1990s, when Japan's economy fell into deflation, firms put priority on
maintaining employment, while restraining wage hikes and business fixed investment.
Under the severe business environment firms were facing, such actions not only had the
effect of curbing the rise in the unemployment rate -- they were also necessary to improve
firms' financial positions. Having overcome this s ituation, firms' personnel expenses and
business fixed investment have started to rise moderately. Nevertheless, it has been pointed
out that growth in such expenses and investment has remained moderate relative to the
substantial increase in corporate pro fits. As a result, the labor share, which is the ratio of
personnel expenses to the total value added generated by firms, has continued on a
moderate declining trend, as shown in the right panel.
C. Further Changes to Be Anticipated
Given these developments, Japan is entering a phase in which it is more necessary than ever,
for long -term economic growth to be realized, to invest in people and carry out business
fixed investment with an eye to the future. In any era, the driving force of a country's
economic growth is proactive action on the part of firms. In what follows, I would like to
elaborate on this point, setting out my hopes for firms.
First, regarding investment in people, high wage growth has been achieved in recent years,
as mentioned earlier. Moreover, the wage hikes have been observed across a broader range
of firm sizes and regions. Looking ahead to next year's annual spring labor -management
wage negotiations, Keidanren has expressed a stance of aiming at further anchoring the
momentum for wage increases, which is very encouraging. The Bank expects that, as such
proactive developments continue in Japan, the mechanism through which wage expectations
are formed will change. For example, in past spring wage negotiations, labor unions often
demanded that price increases in the preceding fiscal year be reflected in wages (base pay
increases); however, in a state where the cycle between wages and prices operates steadily
and the 2 percent price stability target is achieved in a sustainable and stable manner, unions
may shift to a negotiation approach of requiring wage increases in a more forward -looking
manner, grounded in the assumption that prices will continue to rise by 2 percent in the
future. In fact, a report released by the Japanese Trade Union Confederation (Rengo) in
September this year proposes to reflect the outlook for prices in the level of wage demands
to stabilize people's expectations about future wages. 2 My understanding is that firms'
managements make decisions regarding wage hikes i n light of various factors, including
corporate profits, labor market conditions, and price developments. If firms' managements
begin to take into consideration the assumption that prices will continue to rise at a rate of 2
percent, the mechanism in which both wages and prices rise moderately can be expected to
become more robust and more sustainable throughout Japan.
The second point focuses on firms' efforts with regard to business fixed investment. The
prolonged period of deflation in Japan likely crea ted incentives for firms to put off
2 See the report on wage negotiations aimed at creating the future released by Rengo 's evaluation
committee on September 19, 2025 (available only in Japanese).
investment and accumulate cash and deposits to prepare for future uncertainties. However,
if the economy moves into a state where moderate price rises continue, the real value of
cash and deposits will tend to decrease, while investments with an eye to the future will be
increasingly important. Moreover, given the expectation that labor shortages will persist,
there seems to be ample room to step up labor -saving investment, including through the use
of AI. In fact, such m oves are already becoming more widespread. The business fixed
investment plans for fiscal 2025 in the Bank's Tankan released last week show a solid
year-on-year increase of around 10 percent in investment. This confirms that firms have
maintained an active investment stance, centered on research and development (R&D) in
growth areas, such as AI, and on labor saving -related software. What is important is to
overcome the supply -side constraint of labor shortages and achieve improvements in
corporate profitability and labor productivity through such forward -looking business fixed
investment. In the process, to enhance the returns from business fixed investment, simply
making investment is not enough -- to make use of such investment in business, it is also
crucial to secure personnel capable of capitalizing on AI and software by means of human
resource development, including reskilling. The expectation is that, by simultaneously
moving ahead with investments in both people and growth areas, the cycle between wag es
and prices will further gain strength in a way that is accompanied by improvements in labor
productivity.
Efforts on the part of firms, which I have described thus far, are likely to gain greater
traction when backed up appropriately by policies of the government and the Bank. The
government has recently formulated an economic policy package in this regard, called the
"Comprehensive Economic Measures to Build a 'Strong Japanese Economy.'" The various
benefit measures included in the package are expected to alleviate the burden on households
and firms, while at the same time developing the environment for wage increases at firms
and promoting growth investment. The Bank intends to firmly support such
forward-looking behavior by firms from the financial si de through the achievement of the 2
percent price stability target in a sustainable and stable manner.
Concluding Remarks
The time for my speech is running out. Today, I shared my views on the state of the
economy the Bank is aiming to achieve and expressed my hopes for firms. Amid tightening
labor market conditions, firms' wage - and price-setting behavior has changed significantly
in recent years, and the achievement of the 2 percent price stability target, accompanied by
wage increases, is steadily approaching. I would like to close today by expressing my hope
that Japan will further approach the state of the economy the Bank is aiming for in the
coming year.
Thank you very much for your attention.
December 25, 2025
UEDA Kazuo
Governor of the Bank of Japan
Toward the Achievement of the Price Stability Target
Accompanied by Wage Increases
Speech at the Meeting of Councillors of Keidanren
(Japan Business Federation) in Tokyo
Introduction
I. Recent Conduct of Monetary Policy
II. An Economy in Which Both Wages and Prices
Rise Moderately
Concluding Remarks
Results of the December Tankan
Business Conditions DI Corporate Profits
Note: Based on the Tankan. In the left-hand chart, there is a discontinuity in the data for December 2003 due to a change in the survey framework. In the right-hand table, figures are
current profits. The revision rate for FY 2025 is calculated relative to the September 2025 survey.
Source: Bank of Japan.
95 00 05 10 15 20 25
All industries
Manufacturing
Nonmanufacturing
DI ("favorable" - "unfavorable"), % points
"Favorable"
"Unfavorable"
y/y % chg.
Actual value Projection Revision rate
5.6 -2.7 2.3
cturing 5.8 -6.7 1.6
5.5 0.4 2.8
All industries
I. Recent Conduct of Monetary Policy
Moves toward Wage Increases Next Year
Annual Spring Labor-Management
Wage Negotiation Stance
Firms' Stance on Wage Growth
for Fiscal 2026
(Anecdotal Information Collected by
the Bank's Head Office and 32 Branches)
Notes: 1. In the left-hand table, figures for actual wage increases are aggregate figures released by Rengo.
2. In the right-hand chart, figures are based on information collected by the Bank's Head Office and 32 branches on firms' stance on wage growth for fiscal 2026 (released on
December 15, 2025).
Sources: Japanese Trade Union Confederation (Rengo); Japan Business Federation (Keidanren); Bank of Japan.
Wage increase target
Positioning of wage
Actual wage
(Around 3%) Starting point 3.58%
5% or more
(3% or more) Acceleration 5.10%
5% or more
(3% or more) Anchoring 5.25%
5% or more
(3% or more) Further anchoring ―
Figures in parentheses indicate base pay increase rates
I. Recent Conduct of Monetary Policy
Higher About the same Lower
relative to FY 2025,
number of branches (including Head Office)
Cycle between Wages and Prices
II. An Economy in Which Both Wages and Prices Rise Moderately
Rise in consumer prices
(rise in underlying
CPI inflation)
Rise in wages
Increase in private
consumption
Tightening of labor
market conditions due
to labor shortages
Increase in corporate profits
Increase in labor-saving
investment
Improvement in labor
productivity
Increase in
business fixed investment
Rise in real wages
Corporate Profits and the Labor Market
Corporate Profits Labor Market Conditions Employment Conditions DI
Notes: 1. In the left-hand chart, figures are operating profits based on the Financial Statements Statistics of Corporations by Industry, Quarterly. Figures exclude "finance and insurance"
and those for 2009/Q2 onward also exclude "pure holding companies." Figures are 4-quarter backward moving averages. Large enterprises are enterprises with a capitalization
of 1 billion yen or more, while small enterprises are enterprises with a capitalization of 10 million yen or more but less than 100 million yen.
2. In the middle chart, the projection for the working-age population is by the National Institute of Population and Social Security Research. The projection for the number of
employed persons is calculated based on projections by the Japan Institute for Labour Policy and Training.
3. In the right-hand chart, figures are based on the Tankan. There is a discontinuity in the data for December 2003 due to a change in the survey framework.
Sources: Ministry of Finance; Ministry of Internal Affairs and Communications; National Institute of Population and Social Security Research; Japan Institute for Labour Policy and
Training; Bank of Japan.
75 80 85 90 95 00 05 10 15 20 25 30 35 40
(1) Working-age population
(aged 15-64, left scale)
(2) Employed persons (left scale)
mil. persons
Projection
mil. persons
Gap between (1) and (2) (right scale)
85 90 95 00 05 10 15 20 25
inverted, DI ("excessive" - "insufficient"),
Labor shortage
II. An Economy in Which Both Wages and Prices Rise Moderately
00 05 10 15 20 25All enterprises
Large enterprises
Small enterprises
Notes: 1. The CPI figures exclude the effects of consumption tax hikes etc. The figure for 2025 is the January-November average.
2. Figures for base pay increases from 1991 to 2013 are those published by the Central Labour Relations Commission, while those from 2014 to 2025 are figures released by Rengo.
Sources: Ministry of Internal Affairs and Communications; Japanese Trade Union Confederation (Rengo); Central Labour Relations Commission.
Developments in Wages and Prices
II. An Economy in Which Both Wages and Prices Rise Moderately
91 96 01 06 11 16 21
CPI (less fresh food)
Base pay increase
y/y % chg.
Source: Ministry of Internal Affairs and Communications.
Consumer Prices
II. An Economy in Which Both Wages and Prices Rise Moderately
19 20 21 22 23 24 25
Food products (less rice)
Goods (less food products)
CPI (less fresh food)
CPI (less fresh food and energy)
y/y % chg.
Indicators Related to Underlying Inflation
CPI: Trimmed Mean etc. Inflation Expectations
Note: For details of each approach, see the October 2025 Outlook Report. In the right-hand panel, "Old (10-year)" and "Old (longest)" refer to the breakeven inflation rate based on old
inflation-indexed JGBs, while "New (10-year)" refers to the breakeven inflation rate based on new inflation-indexed JGBs.
Sources: Bank of Japan; Ministry of Internal Affairs and Communications; QUICK, "QUICK Monthly Market Survey "; JCER, "ESP Forecast"; Consensus Economics Inc.,
"Consensus Forecasts"; Bloomberg.
II. An Economy in Which Both Wages and Prices Rise Moderately
07 09 11 13 15 17 19 21 23 25
Old (10-year)
Old (longest)
New (10-year)
07 09 11 13 15 17 19 21 23 25
Market participants
Economists 1
Economists 2
Households
Firms (5 years ahead)
y/y, ann. avg., %
(2 to 10 years ahead)
(over the next 5 years)
(6 to 10 years ahead)
(7 to 11 years ahead)
07 09 11 13 15 17 19 21 23 25
Trimmed mean
Weighted median
y/y % chg.
Corporate Sector
Corporate Profits and Spending Behavior Labor Share
Notes: 1. Figures are based on the Financial Statements Statistics of Corporations by Industry, Quarterly. Figures exclude "finance and insurance" and those for 2009/Q2 onward also
exclude "pure holding companies." Figures are 4-quarter backward moving averages.
2. In the right-hand chart, large enterprises are enterprises with a capitalization of 1 billion yen or more, while small enterprises are enterprises with a capitalization of 10 million
yen or more but less than 100 million yen. Labor share = Personnel expenses / Value-added, and Value-added = Operating profits + Personnel expenses + Depreciation expenses.
Source: Ministry of Finance.
95 00 05 10 15 20 25
All enterprises
Large enterprises
Small enterprises
II. An Economy in Which Both Wages and Prices Rise Moderately
95 00 05 10 15 20 25
Operating profits
Personnel expenses
Business fixed investment
nominal, CY 1995 average=100