BoJ’s Ueda Notes Broader Wage Gains, Signals Hike Path

Bank of Japan should continue raising interest rates at intervals of a few months, board member Naoki Tamura said in a speech, arguing the policy rate should gradually move toward a neutral level of around 2%, above the current 1%. He noted inflationary pressures are likely to strengthen regardless of Middle East tensions, with higher import costs expected to pass through to consumer prices more quickly and broadly than after Russia’s 2022 invasion of Ukraine, reflecting shifts in firms’ pricing behavior. “Considering the recent increase in upside risks to prices, what I envisage as a baseline path is raising the policy interest rate by 0.25 percentage points at intervals of a few months toward the neutral interest rate level of 2%,” Tamura said. He added that if inflation risks intensify, the central bank should “accelerate the pace of rate hikes without hesitation” by increasing either the frequency or size of moves.

The Bank of Japan’s June Summary of Opinions indicated broad support among policymakers for continuing rate hikes, citing underlying inflation moving closer to the 2% target while financial conditions remain accommodative. Members said that if the economy and prices evolve in line with the Bank's outlook, further rate hikes would be warranted. Some argued Japan's policy rate remains below the estimated neutral interest rate, seen at around 2%, and should be brought closer to that level to provide greater flexibility to adjust policy in either direction. They also suggested that gradual increases every few months could help avoid the need for more rapid and aggressive tightening later. However, one member cautioned that higher interest rates could curb business investment, weaken aggregate demand, and trigger simultaneous declines in inflation, production, and employment, arguing the board should keep rates unchanged for now.

Bank of Japan will continue raising interest rates while closely monitoring the risk that underlying inflation could exceed its 2% target, Deputy Governor Ryozo Himino said on Friday. He noted that wholesale inflation has been accelerating as firms pass on higher costs stemming from the Middle East conflict, raising the possibility of broader price pressures. "There is a risk underlying inflation may deviate upward from our target," Himino told parliament, explaining the central bank's decision to lift its policy rate to 1% earlier this week. While higher oil prices could weigh on growth, he added that Japan's economy remains resilient, supported by strong corporate profits and rising household income. Meanwhile, minutes from the central bank's April meeting showed policymakers agreed that, with underlying inflation nearing 2% and real interest rates still low, it was appropriate to continue gradually lifting rates while assessing the impact of geopolitical volatility on the economy.