MNI BRIEF: Ueda Flags Gradual Hikes, Warns On JGB Volatility

Bank of Japan Governor Kazuo Ueda said Tuesday the central bank intends to raise its policy interest rate gradually to adjust the current highly accommodative stance, noting that real interest rates remain significantly low, following the Board's decision to hold the 0.5% policy rate.

However, Ueda gave no specific guidance on the timing or method of the next rate hike, emphasising that any decision will depend on economic and price developments, which remain highly uncertain. The overall outlook for the economy and prices has not changed significantly from the previous meeting but the BOJ is closely watching the recent rise in crude oil prices, he added.

“We are focused on whether the rise in crude oil prices expands or is prolonged, and whether it will affect inflation expectations,” Ueda said. He also warned that U.S. trade policy could weigh on Japanese corporate profits.

Ueda also cautioned that moving too quickly on JGB purchase reductions could destabilise markets. “If the pace of JGB buying reduction is too fast, it would increase volatility in JGBs, which could negatively impact the economy,” he said.