BOJ Governor Signals Further Rate Hikes as Japan’s Economy and Inflation Stay on Track

Bank of Japan Governor Kazuo Ueda said on Monday that the central bank is prepared to continue raising interest rates if wages, economic growth, and inflation evolve in line with its official forecasts, reinforcing expectations of further monetary tightening in Japan. Speaking at a banking conference, Ueda emphasized that the Japanese economy remains relatively resilient despite global uncertainties, adding that wages and prices are likely to rise together at a moderate and sustainable pace.

Ueda’s remarks largely echoed his comments following the Bank of Japan’s December policy meeting, where the central bank raised interest rates by 25 basis points, pushing borrowing costs to their highest level in roughly 30 years. That decision marked the BOJ’s third rate hike since it began an unprecedented tightening cycle in 2024, signaling a decisive shift away from years of ultra-loose monetary policy.

Despite these moves, Ueda stressed that monetary conditions in Japan remain accommodative and supportive of economic activity. He noted that if inflation continues to trend higher alongside steady economic growth and wage gains, the BOJ would see room to raise interest rates further. Market participants are now closely watching the central bank’s next policy meeting scheduled for January 22 and 23, when updated economic and inflation forecasts are also expected to be released.

Meanwhile, the Japanese yen continued to weaken, with Ueda’s comments doing little to halt its prolonged decline. The currency has been under pressure amid rising concerns over Japan’s fiscal health, and its weakness has contributed to higher import costs and inflation. A softer yen could further strengthen the case for additional BOJ rate hikes, even as investors remain alert to the possibility of government intervention in currency markets to stabilize the exchange rate.

Overall, Ueda’s latest statements reinforce expectations that Japan’s interest rate outlook remains upward-biased, especially if inflation, wages, and economic momentum continue to align with the central bank’s projections.