MNI: BOJ's Uchida - Gradual Rate Hike, But No Pace Signalling

Bank of Japan Deputy Governor Uchida stated on Wednesday that the central bank will maintain its approach of gradually raising the policy interest rate, citing persistently low real interest rates. However, he offered no guidance on the timing or pace of future rate hikes, citing elevated levels of uncertainty.

“Given the significantly low level of real interest rates, if the baseline outlook for economic activity and prices materialises as expected, the Bank will continue to raise the policy interest rate and adjust the degree of monetary accommodation in line with improvements in economic and price conditions,” the Deputy Governor said in remarks to business leaders in Kochi City.

In this regard, the Bank would examine whether the outlook will be realised, without any preconceptions, he added.

“It remains uncertain how trade negotiations will unfold, and economic data also provides an incomplete picture of how domestic and global economic activity, prices, and financial and capital markets will evolve,” Uchida continued, highlighting his intention to closely monitor such developments and the view that both domestic and global economies appear to be at a critical juncture.

The Deputy Governor noted that these factors also pose a risk of exerting downward pressure on prices in Japan. At the same time, he observed that cost-push pressures, particularly in food prices, have been driving inflation upward.

“My focus is on how these upward and downward pressures may influence the inflation outlook, particularly through their impact on firms’ wage- and price-setting behaviour,” Uchida said.

Given the uncertainty surrounding the outlook for economic activity and prices, he said the Bank must take a risk management approach, adjusting monetary policy to balance upside and downside risks, with the aim of preserving stability in both economic conditions and price levels.

“The Bank seeks to pursue a prudent and robust monetary policy framework, particularly essential in the current environment of heightened uncertainty,” the Deputy Governor continued.

However, Uchida cautioned that if the negative impact of tariff policies proves greater or more prolonged than anticipated, there was a risk that the recent trend of wage increases could lose momentum. 

“This could occur through heightened cost-cutting pressure on domestic supply chains in export-oriented industries, as well as adverse effects on private consumption and the non-manufacturing sector,” he noted.

His remarks were prepared prior to President Donald Trump’s announcement on Tuesday that the United States had reached a trade agreement with Japan, which would reduce "reciprocal" tariffs from 25% to 15%, and include a commitment from Japan to invest USD550 billion in the U.S.