Bank of Japan Governor Kazuo Ueda stated on Monday that the central bank will raise interest rates if the economy improves, but cautioned that risks must be considered before acting.
Ueda had previously delayed rate hikes due to uncertainties around U.S. President-elect Trump’s policies and Japan’s wage outlook. The BOJ has emphasized that consistent wage hikes are essential before increasing borrowing costs, while Prime Minister Shigeru Ishiba committed to boosting minimum wages and consumption.
Ishiba noted that while companies focused on dividends and overseas investment during Japan’s deflation, domestic investment and consumption lacked growth. However, he pointed to positive changes.
Ueda expressed hope that Japan’s momentum toward a 2% inflation target would continue into 2025. He confirmed that the BOJ would raise rates if economic and price conditions improve but highlighted that the timing of such moves depends on economic and financial developments.
After raising rates to 0.25% last year, the BOJ has kept markets uncertain about the next hike. Some expect action at the January 23-24 meeting, while others predict a later move. The 10-year Japanese government bond yield rose to 1.125% on Monday, reflecting expectations of a rate hike.
The potential rate hike depends on whether companies continue significant wage increases, despite global economic concerns. With major wage negotiations set for March, Ueda has stated the BOJ may act before then. Insights into wage trends could come from the bank’s quarterly report on Thursday, and Deputy Governor Ryozo Himino may provide further hints on January 14.
