Bank of Japan chief vows to keep raising interest rates

[TOKYO] Bank of Japan (BOJ) governor Kazuo Ueda said on Monday (Jan 5) that the central bank will continue to raise interest rates if economic and price developments move in line with its forecasts.

Japan’s economy sustained a moderate recovery last year despite the hit to corporate profits from higher US tariffs, he said in a speech delivered to the country’s banking sector lobby.

“Wages and prices are highly likely to rise together moderately,” said Ueda, adding that adjusting the degree of monetary support will help the economy achieve sustained growth.

The BOJ raised its policy rate to a 30-year high of 0.75 per cent from 0.5 per cent last month, taking another landmark step in ending decades of huge monetary support and near-zero borrowing costs.

Despite the move, Japan’s real borrowing costs remain deeply negative with consumer inflation exceeding the BOJ’s 2 per cent target for nearly four years.

Markets are focusing on the BOJ’s quarterly outlook report due at its policy meeting on Jan 22-23, for clues on how the board views the inflationary impact from recent yen falls.

The yen’s weakness has pushed up import costs and broader inflation, prompting some board members to call for further, steady rate hikes.

The dollar rose 0.2 per cent to 157.08 yen on Monday after reaching 157.255 for the first time since Dec 22.

Market expectations of further BOJ rate hikes have pushed up yields with those on the benchmark 10-year Japanese government bond briefly hitting a 27-year high of 2.125 per cent on Monday.

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Speaking before the same banking lobby, Finance Minister Satsuki Katayama said Japan was at a critical stage of shifting to a growth-driven economy, from one mired in deflation. REUTERS