Bank of Japan Governor Kazuo Ueda releases dovish signals: gradual interest rate hikes may occur in the future, cautiously responding to uncertainties

According to the Zhitong Finance APP, on Thursday, as the market widely expected, the nine-member board of the Bank of Japan decided to maintain the short-term policy interest rate at 0.25% with a vote of 8 to 1. This indicates that policymakers tend to act cautiously amid uncertainties surrounding U.S. President-elect Trump's economic plans. However, a proposal from a dissenting board member to raise borrowing costs still shows that the central bank may tighten policy early next year.

Here are excerpts from Bank of Japan Governor Kazuo Ueda's speech at the post-meeting press conference:

Japan's Neutral Interest Rate and Rate Hike Pace

"We note that when we delay rate hikes, if we wish to eventually raise rates to a level close to neutral, it may mean that the pace of future rate hikes could accelerate. Of course, we will also consider this when formulating policy. That said, while underlying inflation is rising, the pace is moderate, which allows us to slow the pace of rate hikes. The reason we are slow to act on rate hikes is that the rise in underlying inflation is very moderate."

Japan's Interest Rate Outlook

"Real interest rates remain very low. If the economic and price trends align with our forecasts, we will continue to raise the policy interest rate. As for the timing of adjusting the monetary support intensity, we need to carefully examine various data before making a decision."

Strength of Japan's Wage-Inflation Cycle

"We need more information regarding the wage outlook, including the momentum of next year's wage negotiations, to confirm the strength of Japan's wage-inflation cycle."

Impact of Yen Fluctuations on Japanese Inflation

"From recent data, it seems that the year-on-year increase in import costs has stabilized."

How long to wait to clearly understand Trump's policies?

"Indeed, uncertainty will never disappear. But over time, we will have more information that can be incorporated into our forecasts... If we wait too long, we may fall behind the situation. We will also consider this when formulating monetary policy."

Focus on the New U.S. Government

"There remains uncertainty regarding the outlook for the U.S. and overseas. The policies of the new U.S. government also carry uncertainty." "The U.S. economy remains generally robust. However, the policies of the incoming U.S. government are uncertain, so we need to examine their impact more closely."

Impact of U.S. Trade Policy on the Global Economy

"The fiscal and trade policies of the incoming U.S. government will have a significant impact not only on the U.S. but also on the global economy and financial markets. We need to carefully study the implications for the Japanese economy. We do not need to wait for specific data or events to decide on monetary policy. When formulating policy, we will carefully examine any available data at each policy meeting."

Japan's Wage Outlook

"It goes without saying that the wage outlook in Japan and the impact of Trump's policies will take a long time to fully grasp. We need to make decisions based on the information available at each policy meeting."

Sustainability of Wage Growth

"In recent months, domestic data has remained largely normal. Overall, the likelihood that the Japanese economy aligns with our forecasts is increasing. However, we need more information to believe that we can raise interest rates, including the sustainability of wage growth "This is also why we hope to see more momentum in next year's wage negotiations."

Is there enough wage data to support a rate hike in January?

"We cannot predict what kind of comments corporate executives will make. We will carefully analyze these comments and combine them with other information to forecast wage prospects. We will also consider other data and information to make a comprehensive decision."

Does the Bank of Japan consider 0.5% to be a psychological upper limit for rate hikes?

"I do not think 0.5% is a specific upper limit. However, as we raise interest rates to what is considered a neutral level, we need to pay increasing attention to various factors. We have always been vigilant about various factors, but as interest rates approach neutrality, we must be even more cautious."