BOJ Eyes 2% Inflation Target Amid Potential Climate Change Impacts

Jibran Munaf
Jibran Munaf

Image: Richard A. Brooks / AFP / Getty Images

The Bank of Japan (BOJ) is aiming to keep its inflation target steady at 2% even as it monitors the potential long-term economic effects of climate change, according to Governor Kazuo Ueda. Speaking at a climate impact conference in Basel, Ueda acknowledged that rising environmental pressures and green transition policies could influence future inflation trends.

“We would like to keep the inflation target at the current level,” Ueda said, though he voiced concern about how climate change could affect public inflation expectations.

Japan is preparing for a carbon tax that may shape future inflation levels, Ueda explained. He also noted that government measures to promote greener practices could lead to short-term inflationary effects, though Japan’s inflation remains below the 2% target.

As part of its green transition strategy, Japan is allocating 20 trillion yen ($131 billion) over the next decade to support businesses investing in sustainable technologies. The plan includes a phased introduction of carbon pricing and a full emissions trading system by fiscal 2026, with a fossil fuel surcharge scheduled for fiscal 2028.

The conference, co-hosted by the Bank for International Settlements, BOJ, Bank of Spain, and the Network for Greening the Financial System, provided a platform for global leaders to discuss climate-driven risks to economic stability and monetary policy.