MNI BOJ WATCH: Ueda Hints Bank Close To Hike; Wages Key

Bank of Japan Governor Kazuo Ueda said on Thursday that the probability of achieving the BOJ’s baseline scenario for growth and prices is gradually increasing, though he provided no guidance as to when the Bank would next raise its policy interest rate.

Speaking after the BOJ, as widely expected, decided to keep the policy rate unchanged at 0.50%, Ueda told reporters that he would like to see more data before deciding on any additional move, and added that it was still too early to judge the extent of wage hikes in fiscal 2026, though it seems that these would only be slightly higher or lower than last year’s.

While the BOJ has repeatedly said that it will adjust the degree of easy policy if it achieves its baseline scenario, Ueda insisted that he had “no prediction” with regard to rate hike timing and added that he would like to see more data before the December meeting. (See MNI POLICY: BOJ Sees No Need To Rush Rate Hikes)

Japan’s economy could contract in the fourth quarter of 2025 or at the beginning of next year, given the lagged impact of trade policy, he said, pointing also to the risk of U.S. economic weakness.

“There is a downside risk to the economy in fiscal 2026, though its scale is uncertain,” he said. “I would like to see the outlook for wage negotiations for the time being, in addition to whether high food prices settle down as the Bank has predicted.”

REAL RATES

Real interest rates remain at considerably low levels, fueling an overheated economy, and Ueda said that the Bank wants to carefully monitor the impact of real interest rates as it implements policy in an appropriate manner.

“I would like to see the beginning of the wage hikes, and I’m focused on whether there will be a negative economic shock from the U.S. at that time.”

When asked about the impact of the weak yen on the economy and prices, Ueda said, “I don’t comment on daily market movements, and forex should reflect economic fundamentals.”

The yen weakened close to JPY154, its weakest since mid-February against the dollar, after the BOJ’s seven-to-two vote for unchanged policy. The BOJ cited continued high uncertainties over the outlook for the economy and inflation.

Board members Naoki Tamura and Hajime Takata dissented for a second consecutive meeting, calling for a hike to 0.75%.

December’s Tankan survey should provide more information about wage hikes in fiscal 2026 and the impact on Japan of the evolving U.S. economy before the next Dec 18-19 meeting.

The BOJ left its core consumer price index forecasts for fiscal 2025, 2026 and 2027 unchanged at 2.7%, 1.8% and 2.0% made in July.

The bank also maintained its assessment that “risks to prices are generally balanced.” (See MNI POLICY: BOJ Board Likely To Maintain Price View)

“Given that real interest rates are at significantly low levels, if the outlook for economic activity and prices is realized, the Bank, in accordance with the improvement in economic activity and prices, will continue to raise the policy interest rates and adjust the degree of monetary accommodation.”