Bank of Japan Deputy Governor: "If Economy and Inflation Move as Forecasted, Interest Rates Will Rise"

"Current Policy Rate Is Sufficiently Accommodative"
Expectations Grow for Additional Rate Hikes
Possibility of Another Hike in March

Shinichi Uchida, Deputy Governor of the Bank of Japan (BOJ), stated on the 5th, "If the economy and prices move as expected, we plan to continue raising the policy interest rate to adjust the degree of monetary easing."

AP Yonhap News

According to Japanese media such as Kyodo News, Deputy Governor Uchida made these remarks during a lecture at an event held in Shizuoka Prefecture on the same day, saying, "The current policy interest rate is sufficiently accommodative."

He added, "If the increase is within the expected range, we can proceed while monitoring the economy's response," but did not specify the timing of any rate hikes.

Expectations for additional BOJ rate hikes have been rising since the end of January. Both Naoki Tamura and Hajime Takada, BOJ board members who gave speeches in February, expressed hawkish (monetary tightening preference) views on further rate increases. Therefore, the tone of Deputy Governor Uchida's speech was a key point of interest.

Regarding the global economic situation, Uchida cited policies of the Donald Trump administration and international disputes as examples, stating, "Uncertainty is high, and we will continue to monitor it closely."

Keiko Ninomiya, Chief Foreign Exchange Market Analyst at SMBC Trust Bank, interpreted, "Given the intensifying US-China trade friction, the Bank of Japan may have found it difficult to take a positive stance on rate hikes," adding, "It can be seen as a consideration not to disturb the financial markets shaken by the Trump administration's policies."

Deputy Governor Uchida reaffirmed the existing policy by stating that in the event of a sharp rise in long-term market interest rates, "We will flexibly increase government bond purchases."

Previously, the Bank of Japan ended its negative interest rate policy by raising the short-term policy rate in March last year for the first time in 17 years. The policy rate was raised to 0.25% in July of the same year and again to 0.5% in January this year.

In the Japanese bond market, the yield on 2-year government bonds reached 0.840%, the highest since October 2008 following the speech. Eiji Michiya, Chief Bond Strategist at SBI Securities, said that while a rate hike is the main scenario at the May monetary policy meeting (April 30?May 1), "The possibility of a rate hike at the March meeting was not ruled out in this speech."