BOJ Governor Ueda signals further rate hikes to anchor inflation

Bank of Japan (BOJ) Governor Kazuo Ueda emphasized the need to anchor underlying inflation around the central bank's 2% target, signaling a readiness to raise interest rates further to curb excessive inflation. His remarks came ahead of the BOJ's two-day policy meeting ending on October 30, where new quarterly growth and inflation forecasts will be closely watched for hints about the timing of the next rate hike.

Ueda noted that economic and price developments aligned with the BOJ's forecasts, with the economy recovering moderately and business sentiment remaining solid according to the central bank's 'tankan' survey. He highlighted rising raw material costs pushing up wholesale inflation, with price pressures spreading to consumer inflation. Long-term inflation expectations continue to rise, he added.

Ueda warned of the risk of underlying inflation overshooting the BOJ's target due to factors such as the US-Israeli war on Iran, strong AI-related demand, and the weak yen. He stated that financial conditions remain accommodative, supporting economic activity even after the September rate hike. The BOJ will continue raising borrowing costs to adjust the level of monetary support, ensuring underlying inflation stays anchored around 2% to prevent economic damage from an inflation overshoot.

The BOJ raised its key rate to a 31-year high last month, with Ueda indicating the central bank has shifted focus to preventing underlying inflation from exceeding its target, suggesting tighter policy ahead.