By Yuki Yamaguchi,
Bank of Japan Governor Kazuo Ueda on Wednesday expressed concern over uncertainties surrounding the impact on the domestic economy of U.S. President Donald Trump's aggressive tariff plans, saying he wants to monitor the situation before deciding on the next rate hike.
At the end of a two-day policy meeting, the BOJ stood pat on the current rate of 0.5 percent. The central bank, which has been shifting away from a decade of ultra-easy monetary policy, raised the key short-term rate from 0.25 percent at the previous meeting in January.
"There is a high degree of uncertainty" regarding Trump's trade policies, Ueda said at a press conference. "We will decide on our policy after studying the impact (of U.S. tariff plans) on the economic outlook and inflation in our country."
Ueda said the bank may have a clearer outlook in early April, when the planned reciprocal tariffs pursued by Trump are expected to take effect.
While acknowledging a downside risk to the global economy, the BOJ chief said the bank plans to increase its policy rate further if the domestic economy and prices continue to move in line with its expectations, adding underlying inflation is still below the level the bank is aiming at.
Hideo Kumano, chief executive economist at the Dai-ichi Life Research Institute, said Ueda appeared to have made a conscious effort to sound neither hawkish or dovish about the timing of the next rate hike at the press conference.
"It seems he tried hard to sound neutral so he will not drive the current long-term interest rates any higher," Kumano said. "That may be a hint that the next rate increase is near."
Long-term interest rates have surged recently in Japan on speculation that the BOJ is aggressively seeking to tighten its monetary policy. The yield on the benchmark 10-year Japanese government bond hit a 16-year high of 1.575 percent on March 10.
Higher rates affect banks' mortgage rates, among other things, putting further pressure on households already hit by rising prices.
The next hike is expected to bring the policy rate to 0.75 percent, its highest level in about 30 years.
The rate of inflation has been at or above the bank's 2 percent target for almost three years, while major firms have promised bumper pay increases for the third year in a row in this year's wage negotiations.
The Trump administration imposed 25 percent tariffs on steel and aluminum imports earlier this month despite vehement opposition from its trading partners. The president is also considering extending the levy to auto imports, which would deal a heavy blow to the Japanese industry.
In Japan, households are feeling the pinch from inflation, with rice prices rising at the fastest rate since comparable data became available in 1971. Prices of vegetables, such as cabbage and tomatoes, are also soaring amid unfavorable weather conditions and increasing production costs.
Japan's core consumer prices, a key indicator for the BOJ, rose 3.2 percent in January from a year earlier, the fastest pace in 19 months. The inflation rate has been at or above the bank's 2 percent target since April 2022.
To mitigate the impact, many Japanese firms agreed to lift salaries in this year's labor-management wage negotiations, with the average increase reaching 5.46 percent, according to the Japanese Trade Union Confederation's preliminary survey released last week.
At the press conference, Ueda said economic indicators including wage data are generally moving on track. Ueda said the BOJ will continue to closely monitor salary and spending trends in making rate decisions.
Under Governor Ueda, the BOJ ended its negative rate policy in March last year and increased its policy rate in July and January.
Many market players expect the next rate hike to come around the summer, forecasting the bank will tighten its monetary policy roughly every six months, based on the timing of recent hikes.
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