TOKYO – Bank of Japan Governor Kazuo Ueda said the central bank must consider further whittling down monetary stimulus if trend inflation continues to accelerate, signalling the chance of another rate hike later this year in line with market bets.
Speaking in parliament, Ueda said the central bank must maintain ultra-loose monetary policy for the time being since trend inflation has yet to reach its 2% target.
But he said solid pay hikes seen so far in this year’s wage negotiations will likely boost household income and consumption, offering an upbeat view on Japan’s economic outlook.
“If economic and price conditions move in line with our current projections, trend inflation will gradually accelerate. If so, we must consider reducing the degree of stimulus,” Ueda said on Tuesday. “Whether this will indeed happen will depend on upcoming data.”
Ueda also said he had no preset idea in mind on when and how the BOJ will next adjust short-term interest rates.
“Even after our policy shift in March, interest rates will stay low and real borrowing costs will remain in deep negative territory,” Ueda said.
In March, the BOJ ended eight years of negative interest rates and other remnants of its unorthodox policy, making a historic shift away from its focus on reviving growth and quashing deflation with decades of massive monetary stimulus.
Markets are on the lookout for clues on from Ueda how soon the central bank will next raise interest rates.
A Reuters poll taken shortly after the March move showed more than half of economists expect another rate hike this year, with October-December the most popular bet on the timing.
The BOJ will hold its next policy meeting in April 25-26, when it will release fresh quarterly growth and inflation forecasts. Its board also holds rate-setting meetings in June, July, October and December.
