BOJ Signals Chance of Early Rate Hike as Tokyo Props Up Yen

The Bank of Japan (BOJ) has hinted at the possibility of an early rate hike, citing concerns over inflation. BOJ Governor Kazuo Ueda warned that underlying inflation could exceed its target and that future policy discussions would focus on upside price risks.

Ueda emphasized that given inflation is approaching 2%, the bank must be mindful of upside price risks more than ever. He stated that delaying necessary policy action could materialize such a risk and hurt the economy.

The BOJ's decision to keep short-term interest rates steady at 1% was widely expected after a hike to the 31-year-high level just last month. However, the hawkish signals sent by the central bank pushed up the two-year Japanese government bond yield.

Ueda also pointed to rising chip prices from strong AI demand and recent yen falls as likely to push up inflation. He noted that many board members' inflation forecasts are fairly high and see risks skewed to the upside.