MNI BOJ WATCH: Ueda Signals More Hikes, Timing Unclear

Bank of Japan Governor Kazuo Ueda laid the groundwork for further interest rate increases after the BOJ’s board decided on a unanimous 25-basis-point hike to the highest level in three decades on Friday, but provided little clue as to timing and stressed that policymakers must examine the impact of higher rates on the economy, inflation and financial conditions.

The next increase in the policy rate, now at 0.75%, could be in sight if, as seems likely, wage increases next year continue to buoy inflation towards the 2% target on a stable and sustainable basis, Ueda told a press conference, but without saying when that might be apparent.

The policy rate appears to be slightly below the lower end of neutral settings, estimated by BOJ officials to be in a range between 1%-2.5%, the governor said, adding that there was no evidence that past rate hikes significantly reduced the level of financial accommodation.

“It is difficult to identify any levels of neutral interest rates in advance, and the Bank will continue to determine the neutral interest rate after carefully monitoring the impact of the rate hike on economy and banks lending,” Ueda said, in answer to repeated questions about the neutral setting. (See MNI POLICY: Risk BOJ Accelerates Hikes Mid-2026)

DIFFERENT TO 1990s

While the policy rate is at its highest level since 1995, the governor noted that economic conditions now are significantly different from 30 years ago, while real rates remain at low levels. The BOJ continues to monitor the probability of achieving its inflation target at each meeting as it considers whether to raise rates again, he said.

The Bank will also watch financial conditions, as evidenced by bank loans, the availability of corporate funds and bankruptcy data.

Some board members at this week’s meeting pointed to the effect of the weak yen on import prices and the risk that this could drive underlying inflation higher, Ueda said.

The 10-year JGB yield rose to 2.000%, the highest level since May 2006, as the BOJ maintained its moderate hiking path, but Ueda said markets respond to multiple factors including fiscal policy and overseas news.

“I refuse to comment on daily moves, as the Bank leaves long interest rates to markets. But the BOJ will act flexibly should rates show exceptional moves,” Ueda said.

He added that there is still downward pressure on yields from the stock-effect of the BOJ’s huge JGB holdings, even if this may have been slightly reduced as it slowly reduces its balance sheet.