MNI BRIEF: BOJ's Ueda Sees Accommodative Conditions after Hike

Bank of Japan Governor Kazuo Ueda said on Monday that even if the bank raises the policy interest rate to 0.75% from 0.50%, financial conditions will remain accommodative.

Asked about the pros and cons of raising the policy rate and the probability of a hike this month, Ueda did not avoid referring to specific details, including the likelihood of a move, at a news conference.

Ueda also warned that if a rate hike were significantly delayed, the bank could be forced to raise the policy rate to 4% or 5%, a scenario that would likely confuse markets.

The governor said the bank is conducting special hearings through its regional branches on corporate wage- and price-setting behaviour ahead of the branch managers’ meeting in mid-January, as policymakers must closely scrutinise whether wage and price formation continues to strengthen.

Ueda added that the current policy interest rate of 0.5% remains below the neutral interest rate.

It is very difficult to specify the gap between the policy rate and the neutral interest rate. When the bank raises the policy rate to 0.75%, I would like to show our thinking about that gap, Ueda said.

He also said downside risks to the U.S. economy have diminished, but warned that tariffs are likely to be passed through to consumer prices, requiring close examination of the impact on Japanese exports.