Bank of Japan Governor Kazuo Ueda said interest rate hikes are “nearing” as inflation and economic trends develop in line with the central bank’s forecasts, helping strengthen the yen without explicitly supporting an increase in December.
“We will adjust the degree of monetary easing at the appropriate time if we become confident or certain that the economy will move as forecasted by our economic and price outlook — particularly that the underlying inflation rises toward 2%,” Ueda said in a Nikkei interview conducted Thursday and published Saturday in Tokyo.
The next rate hike is “nearing in the sense that economic data are on track,” he said.
The yen strengthened to briefly reach 149.47 against the US dollar from around 150.42 just before the interview was published. Japan’s currency had already gained nearly 1% earlier Friday as market bets on a December rate hike rose following data showing inflation in Tokyo accelerating more than expected.
While the central bank chief usually speaks with a media outlet once or twice a year, the latest interview comes ahead of the December board gathering and may be part of the BOJ’s efforts to enhance its communications. The central bank faced criticism over its messaging in the leadup to its July 31 rate hike. The move surprised some market participants, helping to set the stage for market turmoil in early August.
See also: Japan’s rail stocks soar on news of Keisei Electric activist stake
The BOJ’s next policy meeting takes place Dec 18-19, followed by another gathering on Jan 23-24. The key overnight policy rate is still extremely low in comparison with global levels at 0.25%.
The BOJ governor said wage growth is approaching a level consistent with 2% inflation and that he’d like to keep a close eye on wage trends, particularly momentum in the 2025 spring wage negotiations. While confirming that momentum will take a little while longer, that doesn’t mean the BOJ can’t decide on policy before then, he added.
Ueda also flagged the need to keep a watchful eye on the US economy given the incoming Trump administration. The president-elect’s threat of imposing hefty tariffs on other nations has clouded the outlook for global trade.
See also: AI boom makes 139-year-old cable company Japan’s hottest stock
The governor said there was “a big question mark” hanging over the trajectory of the world’s biggest economy. Ueda has previously referenced uncertainty over the US economy to help cool policy move expectations.
Still, investors are increasingly aligning with economists on the view that the BOJ will more likely raise rates in December than wait until January. While the chance of a move in December was priced in at around 30% in overnight swaps at the beginning of November, expectations finished this week at around 66%.
In a Bloomberg survey in October, more than 80% of economists said they expected another hike by January, with just over half of respondents pointing to a December move.
Japan’s key inflation gauge has remained at or above a 2% target for more than two and half years. The measure of Tokyo price growth Friday beat the market consensus, underpinning hopes that the positive wage-inflation cycle long sought by the central bank may be emerging.
That helped fuel the earlier yen strengthening move, taking the currency away from levels viewed as risking market intervention by Japan. Still, the yen remains much weaker than when Ueda took the helm of the central bank in April 2023.
The BOJ governor said that a further weakening of the yen as inflation rises above 2% may pose a large risk and require “countermeasures” from the central bank.
To stay ahead of Singapore and the region’s corporate and economic trends, click here for Latest Section
The interview comes with investors and economists looking for clearer signaling from the central bank over its policy intentions. With his latest remarks, Ueda leaves open the possibility of a December rate move without boxing himself in to that position.
Ueda last week said it’s “impossible” to predict the result of the next gathering as a large amount of new data was yet to be released in a signal that it will be a live meeting.
A special parliamentary session that opened this week in Tokyo is likely to present Ueda with another chance to communicate his thinking on monetary policy. The governor noted the lack of opportunities to convey the BOJ’s thinking before the rate hike in July.
Charts: Bloomberg
