In his first public appearance of the new year, Bank of Japan Governor Kazuo Ueda addressed private bankers, strongly emphasizing the policy intent to continue raising the benchmark interest rate.
"We will steadily advance the interest rate hike process based on the economic recovery and inflation trends," Ueda stated Monday at a New Year meeting hosted by the Japanese Bankers Association, adding, "Adjusting monetary easing policy in a timely manner will help achieve the stable inflation target and promote long-term economic growth."
These remarks, made approximately two weeks after the most recent rate hike, clearly indicate that Ueda has not halted the pace of exiting monetary easing policies, even after raising rates to their highest level since 1995.
Shortly before his speech, the yield on Japan's 10-year government bonds continued its recent upward trend, climbing to a high not seen since 1999, partly fueled by market expectations of further central bank rate increases.
Ueda pointed out, "The virtuous cycle mechanism between moderate wage growth and inflation is expected to be maintained."
It is understood that the Bank of Japan raised the benchmark interest rate to 0.75% on December 19 last year.
While most observers anticipate the central bank's next move around mid-year, some analysts note that the risk of an earlier rate hike is rising due to the yen's weakness.
At the time of writing, the yen traded around 157.18 per U.S. dollar, having earlier touched 157.25, its lowest level in two weeks.
Following Ueda's speech, the yen's exchange rate showed limited movement.
Market participants believe that the yen's approach to the key threshold of 160 against the U.S. dollar was a significant factor influencing the Bank of Japan's interest rate decision last month.
A weak yen exacerbates inflationary pressures by increasing import costs.
With Japan's core inflation indicator having consistently met or exceeded the central bank's 2% target level for over three and a half years, households are already feeling considerable pressure from persistently high living costs.
The Bank of Japan will announce its next policy decision on January 23.
Comments