Japan's Governor Ueda Considers Additional Interest Rate Hike in Second Half

Confidence in Achieving 2% Inflation Rate
Continued Yen Weakness May Reduce Impact of Interest Rate Hikes

Kazuo Ueda, Governor of the Bank of Japan (BOJ), hinted that a second interest rate hike could be implemented soon.

On the 5th, Governor Ueda stated in an interview with the Asahi Shimbun, "Confidence in achieving the 2% inflation target has increased."

Kazuo Ueda, Governor of the Bank of Japan
Photo by Yonhap News

Governor Ueda said, "From summer through autumn, as the results of wage increases are reflected in prices, the likelihood of achieving the target is gradually rising."

The Asahi Shimbun analyzed that the BOJ’s additional rate hike is likely to focus on this period. This means the BOJ wants to confirm the impact of wage increases on prices before raising rates. Japan’s largest labor union, Rengo (Japanese Trade Union Confederation), announced on the 2nd that the wage increase rate for workers reached 5.24%, the largest increase in over 30 years.

When asked whether additional rate hikes would be made within the year if a virtuous cycle between wages and prices is realized, he replied, "It depends on the data," adding, "Since the goal is the continuous and stable achievement of 2% inflation, interest rates will be adjusted accordingly."

Last month, the BOJ raised interest rates for the first time in 17 years at the Monetary Policy Meeting, escaping from negative interest rates for the first time in 8 years. The target is to guide short-term interest rates to 0?0.1%. Although negative rates ended, the rates are effectively zero, so the market is watching the possibility of further hikes.

Governor Ueda also believes that excessive yen depreciation could influence interest rate hikes. Although Japan raised its benchmark rate, the outlook for U.S. rate cuts has receded, causing a significant interest rate gap between the two countries. As a result, the yen depreciation has continued, and the yen exchange rate once fell to its lowest level in 34 years. When asked about the current exchange rate, Governor Ueda said, "No comment," adding, "If exchange rate trends appear to have a non-negligible impact on the wage-price cycle, we can respond with monetary policy."

This statement strengthened expectations that the BOJ will quickly implement additional rate hikes, and the yen rose to its highest level against the dollar in the past two weeks. Around 2 p.m. that day, the dollar-yen exchange rate was moving around 151.2 yen.

Regarding forecasts that the first-quarter gross domestic product (GDP) might decline due to weak personal consumption, he said, "That is possible, but wages are rising and inflation is decreasing," and predicted that if the Japanese government’s tax cut policy to be implemented this summer has an effect, real income will increase and consumption will also rise.

This content was produced with the assistance of AI translation services.