Bank of Japan Governor Kazuo Ueda emphasized his commitment to controlling inflation during a press conference in Bangkok on Friday. He stated that underlying inflation is already around 2% and warned that the central bank cannot tolerate further increases. Ueda also signaled a shift in policy focus, aiming to ensure inflation settles at the 2% target.
Ueda indicated that the BOJ will continue raising interest rates based on economic and price developments, adjusting monetary accommodation as needed. His remarks come ahead of the BOJ's next policy decision in two weeks, where markets currently expect no change. Overnight swaps suggest less than a 5% chance of a rate hike this month, but the probability rises to about 75% by December.
Next week's consumer price index (CPI) is expected to show September prices up 2.1% year over year, with core measures also reflecting steady inflation. Bloomberg reported that BOJ officials are considering a rate hike as soon as December, though they are not inclined to act later this month. Ueda noted that underlying inflation could align with the 2% target within the next 18 months.
Ueda highlighted that the BOJ will monitor Middle East developments, AI-related demand shifts, and currency movements to guide rate decisions. He also plans to discuss adjusting language describing underlying inflation at the upcoming October meeting. BOJ board member Junko Koeda cautioned against being overly cautious about raising interest rates.