Bank of Japan Holds Rates but Signals a Hawkish Stance! Kazuo Ueda Hints at Accelerated Rate Hike Discussions at Next Meeting

According to Jinse Finance APP, at today's monetary policy meeting, the Bank of Japan voted by majority to keep the policy interest rate unchanged at 1%, further reinforcing concerns that visible price rise risks could negatively impact the economy. At the post-decision press conference, Governor Kazuo Ueda took a generally hawkish tone, emphasizing the increasing upward risk to the inflation outlook, and warned that since inflation is now very close to the central bank’s target, any unexpected surge in prices will come at a greater cost.

Kazuo Ueda said, "Given that underlying inflation is approaching our 2% price stability target, it is necessary to pay more attention to the upside risk to prices than before," "Based on this understanding, we intend to conduct in-depth discussions starting from the next policy meeting."

The following are excerpts from Bank of Japan Governor Kazuo Ueda’s remarks at the press conference after the meeting:

On Inflation

Kazuo Ueda stated, "Many of our Policy Board members have quite high inflation forecasts, and they see the risks as tilted to the upside. I intend to take this into account when chairing future policy meetings." "Among the factors I am particularly watching are various data on medium- and long-term inflation expectations, some of which have shown strength or are on the rise."

On Rate Hikes

"If we judge that financial conditions remain accommodative, there is a possibility we might accelerate the pace of rate hikes." "If we fail to achieve stable price growth, we may be forced to raise rates quickly. This would cause nominal interest rates to surge and trigger market turmoil. That would have a negative impact on the healthy growth of the economy. Price stability is also important for promoting investment."

Exchange Rate Impact

"The impact of exchange rate fluctuations on inflation may be greater than in the past. Over the past year, we have also seen a significant depreciation of the yen. As underlying inflation approaches 2%, we must pay particular attention to the upside risk to prices, in contrast to how we handled things in the past... With underlying inflation so close to 2%, the damage caused by inflation risk, once it materializes, would be immense. We have listed three major factors for inflation risk, and exchange rate fluctuations are among them."

"I will not comment on day-to-day market fluctuations. To achieve stable rates in the market, it is important to guide monetary policy appropriately and to direct long-term fiscal policy in a manner that maintains market trust."

Impact of Artificial Intelligence Demand 

"The impact of Artificial Intelligence (AI) demand and exchange rate fluctuations are among the key risk factors we are monitoring. Starting from the next policy meeting, we will examine how these factors impact the economy and prices, and then discuss monetary policy accordingly."