Bank of Japan Governor Kazuo Ueda said on Monday that the central bank will continue raising interest rates if economic activity and price trends evolve in line with its projections.
Speaking to a gathering organized by Japan’s banking sector lobby, Ueda said the country’s economy maintained a moderate recovery last year, even as higher U.S. tariffs weighed on corporate profits.
BOJ maintains tightening bias
Ueda noted that wages and prices are likely to rise together at a moderate pace, adding that fine-tuning the degree of monetary support will be crucial to achieving sustainable economic growth.
The Bank of Japan last month lifted its policy rate to 0.75% from 0.5%, the highest level in 30 years. The move marked another significant step away from decades of ultra-loose monetary policy and near-zero borrowing costs.
Despite the increase, real interest rates in Japan remain firmly negative, as consumer inflation has stayed above the BOJ’s 2% target for nearly four consecutive years.
Yen weakness and market focus
Markets are now closely watching the BOJ’s quarterly outlook report, due at its policy meeting on January 22–23, for signals on how policymakers assess inflationary pressures stemming from the yen’s recent depreciation.
A weaker yen has driven up import costs and broader inflation, prompting some board members to support further gradual rate hikes.
In currency markets, the U.S. dollar rose 0.2% to 157.08 yen after earlier touching 157.255, its strongest level since December 22. Expectations of additional BOJ tightening also pushed Japanese bond yields higher, with the benchmark 10-year Japanese government bond briefly reaching a 27-year high of 2.125%.
Shift toward growth-led economy
Also addressing the banking lobby, Finance Minister Satsuki Katayama said Japan is at a critical turning point as it transitions toward a growth-driven economic model after years of battling deflation.
