Bank of Japan (BOJ) Governor Kazuo Ueda emphasized on Monday that raising interest rates is necessary to prevent rapid inflation and sustain long-term economic growth. His comments may heighten market expectations for another rate hike by the central bank.
Speaking during a presentation, Ueda said that the BOJ will continue to raise its policy rate if economic and price trends align with expectations. He added that the central bank is closely monitoring the yen’s depreciation, which has been under pressure following Donald Trump’s victory in the U.S. presidential election, driving a rally in the dollar.
Addressing business leaders in Nagoya, central Japan, Ueda noted speculation that the BOJ could raise borrowing costs as early as December. However, he clarified that policy decisions would be made at each meeting based on the latest assessments of economic and price conditions.
“I believe that gradually adjusting the level of accommodation in line with improvements in economic activity and prices will support long-term economic growth and help achieve the price stability target in a sustainable and stable manner,” Ueda stated.
At a press conference later that day, Ueda warned that failing to make such adjustments could result in accelerated inflation in the future, forcing the BOJ to implement sharp rate hikes.
On the timing of further rate increases, currently at approximately 0.25%, Ueda said the central bank must carefully monitor the economies of the U.S. and other overseas markets.
He pointed out that recent strong U.S. economic data suggests a higher likelihood of a soft landing but also highlighted the potential for “a resurgence of inflation” due to future economic developments and policy measures.
The dollar has been strengthening against the yen recently, driven by market speculation that Trump’s proposed policies could increase inflation and maintain elevated interest rates.
During the press conference, Ueda acknowledged the yen’s depreciation had negatively impacted households and some businesses. He added that the BOJ has been paying close attention to economic factors influencing foreign exchange movements.
On domestic economic indicators, Ueda noted “some progress,” citing rising wages as businesses pass on higher labor costs through increased service prices.
He stated that core inflation, excluding short-term fluctuations such as import price increases, remains below the BOJ’s 2% target. However, it is expected to gradually rise, supported by wage growth.
“Inflationary pressures from rising wages are projected to strengthen as economic activity improves and wage growth remains robust,” Ueda said during his meeting with local business leaders.
The BOJ ended its negative rate policy in March with its first rate hike in 17 years, followed by another increase in July. However, policy rates were left unchanged at the BOJ’s September and October meetings.
According to the BOJ’s latest economic and price outlook released in October, prices are expected to rise by 2.5% in the fiscal year ending in March, and by 1.9% in both fiscal 2025 and 2026, remaining below the bank’s 2% price stability target.
