MNI BOJ WATCH: Ueda Says To Gradually Raise Rates

Bank of Japan Governor Kazuo Ueda maintained his stance of gradually raising the policy interest rate after the BOJ earlier on Thursday unanimously kept it unchanged at 0.5% as widely expected on the back of high uncertainties over the outlook for output and inflation, but he gave little guide as to timing, insisting that the decision will be data-dependent.

The BOJ could consider raising the policy rate if the likelihood increases that underlying CPI inflation is anchored around 2%, even if it remains slightly below that level, Ueda told a news conference.

“Underlying CPI inflation hasn’t risen to 2% but it is rising steadily but slowly, and moving toward 2%,” Ueda said, adding that U.S. tariffs would put downward pressure on the economy and inflation, though the scale of that impact is still hard to discern, with data distorted by front-loading. (See MNI POLICY: Uncertainty Pushes Back Likely BOJ Hike Timing)

The Bank revised up its median projection for inflation this fiscal year to 2.7% from the 2.2% envisaged in April, mainly due to higher rice prices, and changed its assessment of the balance of risk to prices to “generally balanced”, from the downside risks perceived in April.

WAGE HIKES

The current yen-dollar exchange rate, at around JPY149.50, is roughly in line with the BOJ’s assumptions, Ueda said, though he added that Bank continues to carefully monitor forex moves and their impact on economic activity and prices.

Wage hikes for fiscal 2026 will be a key determinant for BOJ policy, and Ueda said that upward pressure on pay from labour shortages and this year’s higher inflation must be weighed against a drop in profits, particularly at major manufacturers, caused by a slowing global economy. (See MNI POLICY: BOJ Expects US Tariffs To Pressure Japan Profits)

There is little risk that the BOJ will fall behind the curve in tightening policy, Ueda said, adding that the Bank maintains its stance of gradually raising the interest rate if underlying CPI inflation converges toward the 2% price target as projected, with real interest rates staying at low levels.

In its Outlook Report, the BOJ raised its median inflation forecasts for fiscal 2026 and 2027 to 1.8% and 2.0%. from April’s 1.7% and 1.9%, respectively.

The next policy-setting meeting is scheduled for Sept 18-19.