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Bank of Japan (BOJ) Governor Kazuo Ueda stated on Wednesday that the central bank may continue raising interest rates if Japan’s economy and inflation follow current projections. The BOJ recently raised its short-term policy rate to 0.5% in January, its first hike in 17 years, signaling a shift from ultra-loose monetary policy as inflation and wage growth gain momentum.
Ueda emphasized that the recent spike in inflation—largely driven by temporary factors such as higher import and food costs—is expected to subside. However, he noted that deeper, underlying inflation is gradually building due to a tightening labor market and steady economic recovery. These conditions are anticipated to boost wages, leading to broader and more sustainable price increases across both goods and services.
“Underlying inflation, which reflects medium- to long-term price trends, still remains slightly below our 2% target,” Ueda told lawmakers. “But we expect it to gradually converge toward 2% even as temporary pressures ease.”
The BOJ remains cautiously optimistic, watching for signs that higher wages will continue to support sustained inflation. Ueda reiterated that any further rate hikes will depend on clear evidence of broader price gains beyond food and energy.
Japan has long struggled with deflationary pressures, and the BOJ’s 2% inflation target has been elusive for years. However, recent economic data suggest that Japan may finally be approaching a turning point.
As inflationary trends become more entrenched and wage growth strengthens, the BOJ is likely to proceed with gradual policy normalization. Markets will closely watch upcoming economic indicators and wage negotiations for signals on the pace of future rate increases.
