O Bank of Japan maintained its hawkish forecasts for inflation this Friday (23) and emphasized that it will remain attentive to price risks arising from a weak yen, signaling that authorities intend to continue increasing still-low borrowing costs in a politically charged atmosphere.
At a press conference following the decision to maintain the interest ratecentral bank governor Kazuo Ueda said that steady wage increases were encouraging more companies to pass on labor costs.
Although he gave few clues about the timing of the next interest rate hike, Ueda emphasized the need to make timely decisions and not be deterred by data collection, saying that the Bank of Japan will use faster information, such as corporate surveys.
“As prices and wages gradually increase, we are at a stage where we need to examine whether this will continue, and if so, at what pace, by analyzing various data to make our decision on interest rates,” Ueda said at the press conference.
In a two-day meeting that ended this Friday, the Bank of Japan maintained its base interest rate at 0.75%, in a widely expected decision, after raising the rate from 0.5% in December.
Hajime Takata, a member of the board, proposed raising interest rates for the second consecutive meeting, without finding other voices of support, but highlighted the hawkish momentum of the central bank.
In a quarterly outlook report, the central bank presented a more optimistic view of the economy, saying that a positive revenue and expenditure cycle will be “gradually strengthened.”
The Bank of Japan raised its growth forecast for fiscal 2025 and 2026 and maintained its view that the economy will remain on course for a moderate recovery.
He also revised up his core consumer inflation forecast for fiscal 2026 to 1.9% from 1.8% three months ago, adding that risks to the economic and price outlook are roughly balanced.
In a sign of its caution about the inflationary effects of a weak yen, the central bank said currency movements could encourage companies to pass on increased import costs and raise underlying consumer prices.
“We will continue to increase the interest rate if our economic and price forecasts come true. As for our trajectory and pace of increase, this will depend on economic, financial and price developments at the moment,” Ueda said.
