BOJ's Ueda Signals Further Rate Hikes, Citing Inflation Risks

Bank of Japan Governor Kazuo Ueda signaled on Tuesday that the central bank will continue to raise interest rates, citing still-accommodative financial conditions and the need to assess growing inflation risks.

Rate Hikes to Continue

Speaking at a press conference following a G20 finance ministers' meeting, Ueda stated that the BOJ will proceed with raising interest rates, according to a Reuters report. He emphasized that the bank's policy board will discuss at its next meeting whether upside risks to inflation are intensifying.

The governor's comments reinforce the central bank's shift away from its long-standing ultra-loose monetary policy as it works to normalize financial conditions in the country.

Inflation Nears 2% Target

The hawkish stance comes as Japan's core inflation rate hovers very close to the central bank's 2% target. Ueda noted that the BOJ must remain "highly vigilant" about these price pressures when formulating monetary policy.

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However, he also added a note of caution, stating that the central bank must carefully evaluate the cumulative economic impact of its past interest rate increases to ensure a sustainable recovery.

Market Eyes September Move

The Bank of Japan is scheduled to hold its next monetary policy meeting in late September. Following Ueda's remarks, market expectations are solidifying for another rate hike at that meeting.

Persistent domestic inflation and the ongoing weakness of the Japanese yen are key factors underpinning investor bets that the central bank will tighten policy further in the near term.