Summary:
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BOJ signals further rate hikes are likely this year
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Ueda confident wage–price cycle is taking hold
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Policy rate already at a 30-year high
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Spring wage talks seen as key catalyst
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Yen weakness and inflation under close watch
The Bank of Japan is increasingly signalling that further interest-rate hikes are likely this year, as confidence builds that Japan has finally entered a durable phase in which wages and prices rise together. Governor Kazuo Ueda has reinforced that message in recent remarks, making clear that the central bank stands ready to continue normalising policy if economic and inflation trends evolve broadly in line with its projections.
Earlier post:
More now (and recap):
The BOJ raised its policy rate to a 30-year high of 0.75% late last year, following a staged exit from ultra-loose policy that began with the end of negative rates in March 2024. Despite that move, real borrowing costs in Japan remain deeply negative, as consumer inflation has stayed above the BOJ’s 2% target for nearly four years. That backdrop has given policymakers room to continue tightening without, in their view, undermining the recovery.
Ueda has repeatedly emphasised that Japan is moving closer to the long-sought “virtuous cycle” of moderate wage growth feeding through to sustained price increases. He said wages and prices are “highly likely” to rise together, and argued that adjusting the degree of monetary accommodation will help entrench long-term growth while ensuring inflation stabilises around target. The framing signals that further rate hikes are now seen as supportive rather than restrictive policy adjustments.
Attention is turning to this year’s spring shunto wage negotiations, which are expected to play a pivotal role in shaping the BOJ’s next steps. Sources familiar with the matter say the central bank could begin full-fledged internal discussions on another hike if pay settlements confirm that wage momentum remains solid. Strong outcomes would reinforce the BOJ’s confidence that inflation is being driven by domestic demand rather than temporary cost shocks.
Markets are also watching the BOJ’s upcoming quarterly outlook report, due at its January policy meeting, for clues on how officials assess the inflationary impact of recent yen weakness. The softer currency has pushed up import prices and broader inflation, prompting some board members to argue for steady, incremental rate increases. Rising expectations of further tightening have already driven benchmark Japanese government bond yields to multi-decade highs and kept the yen under close scrutiny.
Taken together, the signals suggest the BOJ is firmly on a gradual but persistent normalisation path, with Ueda positioning further hikes as conditional, data-dependent, and central to Japan’s transition away from decades of deflation.
This article was written by Eamonn Sheridan at investinglive.com.
