BOJ chief vows to keep raising rates, anchor inflation around target
FILE PHOTO: FILE PHOTO: Traffic signs in front of the Bank of Japan building in Tokyo, Japan, June 15, 2026. REUTERS/Kim Kyung-Hoon/File Photo/File Photo
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BANGKOK, Oct 16 : Bank of Japan Governor Kazuo Ueda said on Friday the central bank will focus on anchoring underlying inflation around its 2 per cent target and won’t tolerate any overshoot, stressing anew its resolve to continue raising interest rates.
Ueda also said recent domestic data and discussions he had held with global policymakers at this week’s IMF meetings suggested that economic and price developments were moving roughly in line with the central bank’s projections.
“As underlying inflation is roughly near our 2 per cent target, we cannot tolerate inflation from accelerating further,” Ueda told a news conference in Bangkok. “Our stance has shifted recently to a phase where anchoring inflation around our 2 per cent target has become our big policy objective.”
The remarks came ahead of the BOJ’s key policy meeting later this month, where the board will produce fresh quarterly growth and inflation forecasts that will be scrutinised for clues on the pace and timing of future rate hikes.
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“As underlying inflation is quite close to 2 per cent, it is becoming more important than before to anchor it around our target,” Ueda said, adding that the bank would consider this at its next policy meeting.
Ueda will take home insights from his discussions with G7 and G20 colleagues in Bangkok, including what his US counterpart Kevin Warsh described as the “common challenge” for global policymakers of dealing with inflation.
The BOJ may face renewed pressure to increase the pace of rate hikes amid global inflationary pressures from the Iran war and an AI-driven demand shock, which dominated discussions at this week’s IMF meetings.
Having raised interest rates in September, many in the BOJ prefer to stand pat at its October 29-30 meeting to await more data on how its hikes so far have affected economic and financial conditions, sources have told Reuters.
Even so, the BOJ is likely to drop hawkish signals on the policy outlook that leave scope for a December hike, with analysts noting that AI is adding to the inflationary pressures coming from high energy costs and rising import prices due to a weak yen.
“Having discussed with policymakers across the globe, I didn’t get the impression their views diverged widely from ours,” Ueda said on global inflationary pressures. “But I felt that more policymakers saw global AI demand as somewhat stronger than what the BOJ had expected,” he added.
UPSIDE RISKS TO INFLATION
During this week’s annual meetings, the International Monetary Fund highlighted the resilience of the global economy to shocks such as the Middle East war, with the pain mitigated by brisk AI-related demand.
Global policymakers, however, also warned of the inflationary pressure from the AI boom that could warrant further monetary tightening — a message particularly relevant to the BOJ given its still-low borrowing costs.
Such discussions may affect the BOJ’s new quarterly growth and inflation projections due out at this month’s rate review.
Already, the BOJ has pivoted away from its cautious approach towards a policy more focused on combatting inflationary risks by hiking rates in June and September.
But at 1.25 per cent, its policy rate still means real borrowing costs are negative with inflation hovering around its 2 per cent target and seen accelerating as firms pass on input costs to households.
US Treasury Under Secretary Erin Browne kept pressure on the BOJ to continue tightening to prevent disorderly yen falls, saying on Friday that Japan must adjust its monetary policy to reflect that it no longer faces a deflationary environment.
The US Federal Reserve’s rate decision at its October 27-28 meeting could also affect the BOJ’s debate through any impact on the yen, as the still-wide US-Japan rate divergence has caused the currency to weaken and increased import costs, analysts say.
Source: Reuters
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