MNI BOJ WATCH: Ueda Says Rate Hikes Will Come; No Timing Hints

Bank of Japan Governor Kazuo Ueda insisted that rate hikes remain in prospect but provided no further hints as to timing on Friday after the BOJ voted to keep the policy rate unchanged at 0.5% with two dissenters calling for a 25-basis-point hike.

Uncertainty over the effects of U.S. trade policy and over the U.S. economy itself continues, and downside risks persist, Ueda told reporters.

 “Real interest rates stay at considerably low levels. We will raise the rate to adjust the degree of easy policy. We continue to carefully monitor the impact of trade policy on global economy without any preconditions,” he said, after the seven-two vote to hold, with calls for a hike by Naoki Tamura and Hajime Takata.

While manufacturers’ profits are suffering due to U.S. tariffs, the impact on Japanese capital investment, and on its labour market and the pace of wage hikes, has so far been limited, Ueda said, adding that he sees no need to revise views on the economy and prices made in July. (See MNI POLICY: BOJ 2025 Hike Chances Weak On Wages, U.S. Concerns)

Tamura warned of upside risks to prices and argued for the BOJ to set the policy rate a little closer to neutral, while Takata said the price stability target had been more or less achieved.

DISSENTERS

When asked about the gap between his views and those of the two dissenters, Ueda noted that underlying CPI inflation is approaching 2% but is still below it. The more difficult environment for exporters may also apply downward pressure to Japan’s economy and on inflation. (See MNI POLICY: Tankan Key For Gauging Wage Growth; BOJ Cautious)

“We must be conscious of those risks,” he said, adding that the outlook for the U.S. is also difficult to predict, and that while its labour market is slowing, capital investment there remains solid, but that inflation could face upwards pressure if companies transfer the cost of tariffs to consumers.

The BOJ also unveiled plans to offload its ETF and J-REIT holdings, with annual sales set at roughly JPY330 billion for ETFs and JPY5 billion for J-REITs, proportionate to their share in the central bank’s portfolio. The pace of sales may be adjusted in future meetings depending on market conditions, and Ueda noted that their disposal would take more than 100 years. The decision to dispose of the assets was not related to the record high in the Nikkei stock index, which reached 45,000 for the first time on Tuesday, Ueda said.

The BOJ said the disposal will begin early next year once preparations are completed.