MNI BOJ WATCH: Unchanged; Ueda Insists Rates To Rise Gradually

Bank of Japan Governor Kazuo Ueda on Thursday signaled a potential delay in raising the 0.5% policy interest rate following the board's decision to hold on Thursday, citing a likely temporary pause in the improvement of underlying inflation.

While Ueda stuck to the Bank’s stance of gradually raising the policy rate if the economy and prices move in line with forecasts, he did not elaborate as to when or how it could do so, though he said that a likely delay in achieving the BOJ 2% price target did not necessarily imply a delay in tightening.

“Economic growth will likely be under downward pressure due to U.S. trade policies," Ueda told reporters. "As a result, the rise in wages and prices is somewhat weaker and the improvement of underlying CPI inflation is likely to stall.” (See MNI POLICY: BOJ Growth Cut Will Not Close Door on Hikes)

The BOJ board pushed back the timing for achieving its 2% price target by about one year, but its Outlook Report revised down its economic growth and inflation forecasts for this fiscal year and fiscal 2026 due to a slower global economy. 

Ueda said that even if the improvement in underlying CPI inflation temporarily stalls, the BOJ will consider raising its policy interest rate if it is confident that the trend towards improvement is set to resume. However, if that assumption changes, the BOJ’s view on the economy and prices would change accordingly, with implications for policy decisions, he said. (See MNI POLICY: BOJ Considering 2% Target Delay, GDP Revision)

Asked about the timing of the next rate hike, the governor said it will depend on whether economic and price trends align with the BOJ’s baseline scenario and how likely that scenario is to materialise. The baseline scenario supposes some progress in global trade talks and that significant disruptions to global supply chains will be avoided, he added.

VIRTUOUS CYCLE INTACT

The virtuous cycle between wages and prices remains intact, though it is weakening somewhat, he said, adding that the BOJ must pay great attention to the impact on winter bonuses and wage hikes next year of a drop in corporate profits caused by slowing overseas economies.

Earlier in the day, the BOJ as widely expected kept its policy rate at 0.50% on the back of high uncertainties over the outlook for economy and prices.

The bank lowered its median forecast for economic growth this fiscal year and fiscal 2026 to 0.5% and 0.7%, from 1.1% and 1.0%, respectively, in January. Its first forecast for fiscal 2027 growth was +1.0%, on the median.

The board’s median forecasts for core consumer price inflation were revised down to 2.2% this fiscal year and to 1.7% in fiscal 2026, from 2.4% and 2.0%. The first median forecast for core CPI in fiscal 2027 was 1.9%.

“Risks to economic activity are skewed to the downside for fiscal 2025 and 2026. Risks to prices are also skewed to the downside for fiscal 2025 and 2026,” the BOJ warned.