Bank of Japan Governor Kazuo Ueda delivered an extended set of remarks on Monday, offering his clearest indication yet that the central bank is preparing to continue raising interest rates, while stressing that monetary policy will remain accommodative and aimed at supporting Japan’s moderate recovery.
Ueda said overseas economies are showing “some weakness” but are still “gradually increasing as a whole,” and noted that the feared drag from U.S. tariff policies has “not materialised much so far.” Even so, he maintained the BOJ’s long-held view that global growth will slow temporarily under the weight of those tariffs.
If the BOJ’s projections for economic activity and inflation continue to materialise, Ueda said the bank “will continue to raise the policy interest rate in accordance with improvements in the economy and prices.” He repeatedly emphasised that even as rates rise, financial conditions will remain accommodative, framing the shift as “easing off the accelerator” rather than applying the brakes.
Japan’s economy, he said, “has recovered moderately, although some weakness has been seen,” but the likelihood of the BOJ’s baseline scenario being realised is “gradually increasing.” He added that the negative GDP print for the July–September quarter is expected to be temporary.
A key focus will be whether Japan’s new wage dynamics can be sustained. Ueda said the BOJ must closely examine whether firms’ recent active wage-setting behaviour will continue, highlighting next year’s spring wage negotiations as critical. The decision by Japan’s minimum wage authorities to lift the 2025 minimum wage by more than 5% is “highly likely” to encourage broader wage hikes across companies, he said.
On inflation, Ueda said firms have continued to pass higher wages into prices, with goods and services both rising moderately. Core inflation is expected to dip “temporarily below 2%” through the first half of fiscal 2026 before re-accelerating, ultimately reaching levels “generally consistent” with the BOJ’s 2% target in the latter half of its three-year projection period.
Ueda also warned that with firms increasingly willing to raise wages and prices, exchange rate moves may have a more direct pass-through to inflation than in the past. He said price developments could shift underlying inflation through changes in expectations, particularly for food, where frequent purchases mean persistent price increases can more quickly influence household inflation psychology.
Ahead of the December meeting, Ueda said the BOJ will assess domestic and global economic conditions, market developments, and the balance of risks, and “consider the pros and cons of raising rates,” stressing the need to adjust policy “appropriately, without being too late or too early” in order to achieve stable price growth.
He added that uncertainty around the economic outlook is “gradually diminishing,” and that the impact of tariff policies on corporate profits appears more limited than initially feared.
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The yen has been climbing all morning ion Tokyo ahead of this speech, and its moving higher still. Ueda does sound like a man intent on a rate hike at the December 18-19 meeting here, make you wonder how much of this was in the market prior to his speech. In the Japanese market that is. It often seems like a leaky sort of place, yeah?
