Bank of Japan (BoJ) Deputy Governor Shinichi Uchida stated on Wednesday that the central bank may further adjust its policy if economic forecasts are met. Uchida noted that the Bank could proceed with interest rate hikes, assessing economic activity and price responses, while ensuring the pace aligns with expectations.
He emphasized that while the BoJ does not currently know the precise interest rate level neutral to economic activity and prices, the central bank will continue to monitor economic developments as it raises rates. Uchida reiterated that, if the outlook for economic activity and prices aligns with the bank’s forecasts, the BoJ would continue to raise policy rates and adjust its degree of monetary accommodation accordingly.
Uchida acknowledged ongoing uncertainties surrounding the global economy, stressing the need for caution in policy decisions. However, he highlighted that wages are expected to rise steadily, supporting private consumption, which has been on a moderate upward trend.
He added that corporate capital expenditures (capex) are likely to increase over a prolonged period, and Japan’s economy is projected to grow at a pace above its potential growth rate. Despite some weaknesses, the economy has shown moderate recovery.
In terms of monetary easing, Uchida pointed out that the BoJ’s limited reduction in holdings of Japanese Government Bonds (JGBs) suggests that the effects of easing remain significant. He reiterated that long-term interest rates should be determined freely by the financial markets, but in exceptional circumstances, such as rapid and abnormal rises in long-term rates, the BoJ would respond swiftly, potentially increasing JGB purchases.
Uchida clarified that the BoJ’s policy stance regarding short-term interest rates and JGB purchases remains unchanged.
Market Reaction: At the time of the statement, USD/JPY held its gains near 150.00, showing a 0.20% increase on the day following Uchida’s remarks.
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