Bank of Japan Governor Hints at Possibility of Further Interest Rate Hike

"Real Interest Rates Remain Deeply Negative Even After Policy Rate Change"

Kazuo Ueda, Governor of the Bank of Japan, suggested the possibility of further rate hikes, stating that "even after the policy rate change, the real interest rate remains significantly negative."

Kazuo Ueda, Governor of the Bank of Japan. [Image source=Yonhap News]

At a press conference following the Bank of Japan's Monetary Policy Meeting on the 31st, Governor Ueda said, "Based on the fact that the current real interest rate is at an extremely low level, if the economic and inflation forecasts presented this time are realized, I think we will continue to raise the policy rate accordingly to adjust the level of monetary easing."

Regarding the possibility that the 0.5% level might be perceived as a ceiling for future policy rates, he added, "I am not particularly conscious of that."

However, he avoided giving specific answers about the magnitude or speed of future additional hikes. In response to questions about the possibility of a rate increase within the year, he said, "If the economic situation is better than expected, there may be further adjustments," but added, "It depends on future data."

Regarding the impact of this rate hike on the economy, he assessed that "it will not have a significantly negative effect on the economy," and said that the economy is recovering moderately.

At the Monetary Policy Meeting that day, the Bank of Japan decided to raise the policy rate from the previous 0?0.1% to about 0.25%. This is an additional increase four months after ending the negative interest rate policy by raising rates for the first time in 17 years on March 17.

Additionally, the Bank decided to pursue a quantitative easing rollback policy by gradually reducing long-term government bond purchases by about 400 billion yen (approximately 3.6 trillion won) quarterly. If implemented as planned, the purchase amount in the first quarter of 2026 will be 2.9 trillion yen per month, about half of the 5.7 trillion yen in July this year.

Accordingly, the yen showed strength. Around 5 p.m. that day in the Tokyo foreign exchange market, the yen/dollar exchange rate fell 2.5% from the previous day's closing price to 151 yen per dollar.