Bank of Japan raises interest rates to 31-year high; Governor Ueda Kazuo: Does not rule out a 50 basis point or consecutive rate hikes, but cautions against excessive tightening of financial conditions

According to Golden Ten Data, the Bank of Japan (BOJ) raised interest rates on Friday to the highest level in 31 years and signaled its readiness to continue pushing up borrowing costs, joining other major central banks in combating the ongoing inflationary pressures caused by surging oil prices. However, this widely expected rate hike failed to boost the yen, which instead declined. Investors focused on two main points: the policy guidance lacked clear hawkish signals, and two dovish dissenting members advocated for patience regarding further rate hikes.

Below are excerpts from BOJ Governor Kazuo Ueda's remarks at the post-meeting press conference:

On a 50 basis points rate hike or consecutive hikes:

“This depends on how the price situation evolves. There are various possibilities, and we should not exclude any options.”

“We are at a stage where we need to carefully scrutinize all the data. But this does not mean we can act slowly. We will thoroughly analyze the data and take timely action when necessary.”

“As for the future pace of rate hikes, we do not have any preset ideas, such as raising rates every three months. We will decide at each policy meeting how best to ensure that core inflation remains stable at 2%.”

On risk factors:

“If the upward momentum in energy costs persists, it could further intensify wholesale inflation pressures, which may then be transmitted to consumer inflation. This is something we need to be vigilant about.”

On financial conditions:

“As we raise rates, financial conditions are becoming less accommodative... It is important to avoid an excessive tightening of financial conditions due to overly aggressive rate hikes, or triggering a sharp adjustment in asset prices.”

On the uncertainty of the neutral rate:

“It is difficult to precisely determine where the neutral interest rate lies, and therefore, the terminal rate is also hard to pinpoint. What is likely is that as we adjust our policy in a timely manner, we will learn in advance where those rates stand.”

On inflation:

“So far, our short-term policy focus has been to push core inflation up from below 2%. Now, core inflation is approaching 2%. If the risk of core inflation exceeding 2% materializes, it could negatively impact the Japanese economy. Keeping core inflation stable at 2% is crucial. Our policy phase has already changed.”