• The Bank of Japan (BOJ) intends to maintain its 2% inflation target despite potential climate change shocks, according to Governor Kazuo Ueda.
• Ueda also mentioned that Japan is likely to introduce a carbon tax in the future, which could influence inflation expectations.
• The Japanese government plans to provide fiscal support worth 20 trillion yen ($131 billion) to companies investing in environment-friendly technology over the next decade.
• World food prices reached an 18-month high in October, while U.S. stocks closed higher on Friday, ending a stellar week as Donald Trump's election victory fueled expectations for favorable business policies.

In a recent conference held in Basel, Kazuo Ueda, the Governor of the Bank of Japan (BOJ), expressed the bank's intention to maintain its 2% inflation target, despite potential long-term shocks to future price developments caused by climate change.

The conference, which was monitored via a live YouTube feed, was co-organized by the Bank for International Settlements, the BOJ, the Bank of Spain, and the Network for Greening the Financial System.

Ueda emphasized that the BOJ will monitor carefully the economic impact of climate change and the fallout from government measures to promote the green transition. These factors could significantly affect inflation expectations.

Japan's Green Transition Strategy

We would like to keep the inflation target at the current level, even if climate change shocks occur, Ueda stated. However, he also expressed concern about the potential impact on inflation expectations. The Governor also mentioned that Japan is likely to introduce a carbon tax in the future, which could influence inflation expectations.

This was discussed at the conference, which focused on the impact of climate change on the economy and monetary policy. Government subsidies to promote the green transition may also create inflationary pressure in the short term.

However, Ueda reassured that Japan can accommodate such inflationary forces for a while, as the underlying inflation is currently still below 2%.

As part of its green transition strategy, the Japanese government plans to provide fiscal support worth 20 trillion yen ($131 billion), or 3% of the country's gross domestic product (GDP), to companies investing in environment-friendly technology over the next decade.

In the second phase of the strategy, the government plans to introduce carbon pricing and operate a fully fledged emissions trading system in fiscal 2026, and to impose a fossil fuels surcharge in fiscal 2028.

Global Economic Developments

In other news, world food prices reached an 18-month high in October, led by increases in vegetable oils and most food staples, according to United Nations' data. The price index, compiled by the UN Food and Agriculture Organization (FAO), increased to 127.4 points last month, up 2% from a revised 124.9 points in September.

This marked its highest since April 2023, though it was 20.5% below a record from March 2022 reached after Russia's invasion of Ukraine.

Meanwhile, U.S. stocks closed higher on Friday, ending a stellar week as Donald Trump's election victory and a possible Republican Party sweep in Congress fueled expectations for favorable business policies.

The Dow advanced six tenths of one percent, the S&P climbed nearly four tenths, and the Nasdaq rose marginally. All three notched record closing highs and the S&P 500 crossed 6,000 for the first time ever during the session. The S&P and the Dow also experienced their biggest weekly percentage gains in a year.

In the small caps sector, the Russell 2000 advanced on Friday, registering its biggest weekly percentage gain in 4-1/2 years. Domestically concentrated stocks are seen as likely to benefit from easier regulations, lower taxes, and less exposure to import tariffs.

Stocks on the move included Expedia, which added four percent after it beat quarterly profit estimates helped by strong international travel demand. However, shares of Airbnb plunged nearly nine percent after the homestay company missed third-quarter profit estimates.

Investors were also monitoring for a likely Red Sweep as Republicans were set to keep their narrow lead in the House of Representatives after winning control of the Senate. This would make it easier for Trump to enact his legislative plans.

Rate-sensitive sectors such as real estate and utilities were the best performing of the 11 major S&P 500 groups as Treasury yields fell for a second straight session after a sharp jump following the election.