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(Bloomberg) -- Bank of Japan Deputy Governor Shinichi Uchida signaled that the benchmark interest rate remains on a gradual upward path, in remarks that may quell speculation of an early move.
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“The Bank will accordingly continue to raise the policy interest rate and adjust the degree of monetary accommodation” if the economic outlook is realized, Uchida said Wednesday in a speech to business leaders in Shizuoka, central Japan. “In this regard, the key point of the outlook is that the bank expects the 2% price stability target to be achieved.”
Uchida said officials will have to monitor the economy’s reaction to every rate hike — after three increases in the last 12 months — as it’s hard to gauge exactly where the neutral rate that’s neither restrictive nor stimulative resides. That comment suggests it’s unlikely the bank would raise rates at back-to-back meetings, including in March after it hiked in January. He indicated that the benchmark rate could rise to at least 1% by the end of fiscal 2026 by citing a range of estimates.
Uchida’s remarks come as BOJ watchers are looking for any hints that the next upward move could come earlier than the consensus view that projects the move will come in the summer. Recent economic data, persistent yen weakness and growing attention to surging food prices have prompted some economists to cite the risk of an early move.
While Uchida reiterated the BOJ’s stance to keep raising borrowing costs, he offered little indication that the bank is leaning toward an early move after the hike to 0.5% in January, although he didn’t entirely rule out the possibility.
“The most important message today was that there is no rate hike in March,” Tsuyoshi Ueno, senior economist at NLI Research Institute. “Uncertainties are very high now and there is a risk that the BOJ may have to raise the rate at the May meeting if the yen weakens rapidly, so Uchida wanted to maintain maximum optionality.”
Uchida used a chart as a reference to show market expectations for the BOJ’s policy rate, illustrating that the outlook is slightly above 1% in two years.
“I’m not talking about the market’s view or the BOJ’s view, either,” Uchida said at a press conference later Wednesday. “Anyway, it’s not a pace that requires a rate hike at every meeting, so we can weigh where we need another hike by checking the economy and inflation.”