Bank of Japan (BOJ) Governor Kazuo Ueda reaffirmed that while core inflation is nearing the target of 2%, the financial environment remains accommodative, indicating that further interest rate hikes will continue. However, he did not specify the exact timing or pace of these hikes, stating that decisions will be made based on the likelihood of achieving the BOJ's economic and inflation forecasts and assessing risk factors.
In remarks at the National Securities Conference on October 6, Ueda said, "We will continue to raise policy interest rates and adjust the degree of monetary easing based on economic, price, and financial conditions." He emphasized that stabilizing core inflation around 2% has become more important than before, explaining that the risk of core inflation exceeding 2% could negatively impact the economy.
Regarding the Japanese economy, Ueda noted some sluggish trends due to the situation in the Middle East but assessed that a gradual recovery is underway. He explained that exports have begun to rise again, driven by increased global demand for artificial intelligence (AI), and corporate profits remain at a high level. The business sentiment index from the September Tankan survey, released on October 1, was also rated as "good." While equipment investment is affected by rising construction costs, it continues to grow. Personal consumption, although still somewhat weak, shows a solid trend due to improvements in employment and income conditions.
Ueda also identified ongoing inflationary pressures, citing rising oil prices, a weaker yen, and expanding AI-related demand, which have led to sustained increases in corporate prices. He noted that these pressures are beginning to translate into consumer prices, with movements to reflect wage increases in selling prices continuing. He assessed that medium- to long-term inflation expectations are rising and that the core inflation rate is approaching 2%. He stated that the trends in the Japanese economy and prices are generally in line with the forecasts presented in the BOJ's economic and price outlook report.
Ueda pointed out risk factors surrounding economic and price forecasts, including the situation in the Middle East, the expansion of AI-related demand, and exchange rate fluctuations. He emphasized the need to closely monitor the impact of these factors on the Japanese economy and prices, warning that there is a risk of core inflation exceeding the 2% target.
Following the interest rate hike to 1.25% in September, Ueda stated, "The accommodative financial environment will continue to firmly support economic activity." He added, "We will appropriately manage monetary policy from the perspective of achieving the 2% price stability target in a sustainable and stable manner."
The BOJ is set to hold a monetary policy meeting on October 29-30 to discuss the possibility of further interest rate hikes.
* This article has been translated by AI.
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