BOJ Chief Indicates No Urgency to Raise Rates Further, Reports Reuters

By Leika Kihara

OSAKA – The Bank of Japan (BOJ) is taking a cautious approach in observing developments in financial markets and global economies while formulating its monetary policy. Governor Kazuo Ueda stated on Tuesday that there is no immediate urgency for the central bank to raise interest rates any further.

Ueda expressed anticipation to closely analyze service-price data for October, which will be released in November, to assess whether underlying inflation is trending towards the BOJ’s 2% target—a key condition for potential rate hikes.

"October is a significant month for service-price adjustments in Japan, and it is crucial for us to examine the data thoroughly," Ueda remarked during a news conference following a meeting with business leaders in Osaka. He suggested that the BOJ will likely postpone any rate increases until at least December.

The BOJ is scheduled to meet for a policy review on October 30-31, where it will also conduct a quarterly reassessment of its growth and inflation projections.

Ueda reiterated that the BOJ is prepared to raise interest rates if underlying inflation shows a sustained increase towards the 2% target as anticipated, indicating a continuation of its gradual approach to adjusting borrowing costs from near-zero levels.

However, he highlighted potential risks to the economic outlook, including the volatility in financial markets and doubts regarding a smooth economic transition in the U.S.

"We need to implement our policy in a timely and appropriate manner without adhering to any preset timeline, while taking various uncertainties into account," Ueda said during his address to business leaders.

He noted that the yen has rebounded since August, which has helped reduce the risk of inflation exceeding targets by stabilizing the rise in import prices.

"We have the capacity to take our time in monitoring financial market trends and overseas economic developments to guide our monetary policy," Ueda affirmed.

His comments reflect a shift in the BOJ’s focus from inflationary pressures to concerns about slowing global growth and the impact of a stronger yen on Japan’s export-reliant economy. This aligns with statements he made following the BOJ’s policy meeting on Friday, where the board unanimously agreed to maintain short-term rates at 0.25%.

Ueda emphasized that domestic economic conditions are progressing in accordance with the BOJ’s expectations, with rising wages supporting consumption and contributing to an increase in service-sector prices. Nonetheless, he underscored the importance of remaining vigilant regarding emerging international risks, such as the implications of aggressive interest rate hikes by the Federal Reserve on the U.S. economy.

He described financial markets as "somewhat unstable," reinforcing the need for close monitoring of developments.

The BOJ ended its negative interest rate policy in March and raised short-term rates to 0.25% in July, marking a significant departure from a decade-long stimulus strategy aimed at boosting inflation and economic growth. This rate-hike cycle in Japan contrasts with the actions of many other central banks, which have begun reducing interest rates after previous aggressive tightening to combat inflation.

Japan’s core consumer inflation has accelerated for four consecutive months, remaining comfortably above the BOJ’s 2% target, which keeps expectations alive for further interest rate adjustments.