Ueda Kazuo: The timing of the next interest rate hike is uncertain and will closely monitor U.S. economic data

According to the Zhitong Finance APP, the Bank of Japan announced on Thursday that it would maintain its ultra-low interest rates, in line with market expectations. The central bank stated that it needs to closely monitor global economic trends and emphasized the risks faced by Japan's fragile recovery when deciding when to continue tightening monetary policy.

On Thursday, the Bank of Japan kept the short-term policy interest rate unchanged at 0.25%, which aligns with the general expectations of economists. The Bank of Japan also broadly maintained its inflation expectations, indicating that inflation will hover around the 2% target in the coming years, suggesting its readiness to continue reducing large-scale monetary stimulus measures. Following the announcement of the latest interest rate decision, the yen fluctuated within a narrow range against the dollar.

In its quarterly outlook report, the Bank of Japan also stated: "The Bank of Japan needs to appropriately pay attention to the future trends of the overseas economy, especially the U.S. economy, as well as developments in the financial markets."

After the announcement of the Bank of Japan's interest rate decision, the market closely watched Bank of Japan Governor Kazuo Ueda's remarks on the central bank's pace of interest rate hikes and the outlook for Japan's inflation and the global economic situation. Here are key excerpts from Ueda's speech at the post-meeting press conference:

Next Rate Hike

"As for the specific timing of the next rate hike, we do not have a preset idea. We will carefully review the available economic data at each policy meeting and update our views on the economic and monetary policy outlook when deciding on monetary policy."

On the U.S. Economy

"Recently, we have seen some very positive economic data from the U.S. However, there is still uncertainty about how the Federal Reserve's past aggressive rate hikes will affect the economy and prices. We need to closely monitor the developments in U.S. economic data."

"When we use language like 'we can take more time' to gauge risks, the weak employment data in the U.S. has led to fluctuations in global financial markets. We believe that the significant volatility caused by a weak U.S. economy has had a serious impact on the Japanese economy, more so than other data."

"However, since then, we have seen some quite good data from the U.S. Nevertheless, we still do not have complete confidence in the U.S. economic growth outlook, which is why we added a new line of concern in our policy guidance report. 'If the overall data from the U.S. continues to improve, this risk will diminish to a level comparable to other risks.'"

Wage Increase Transmission Effects Expanding

"When we look at the latest Tokyo CPI data, there are signs that the transmission of wage increases to service-type prices is expanding. We seek to carefully study whether this expansion will occur nationwide."

Wages and Prices

"From the numerous domestic data in Japan, the trends in wages and prices are generally consistent with our forecasts. As for the downward-related risks of the U.S. and overseas economies, we see the clouds beginning to dissipate."

"Since the summer, the related risks surrounding a U.S. economic recession have been clearly diminishing. However, there are other risks, so we cannot be 100% certain of our baseline forecast scenario. Only when this confidence further increases or strengthens can we consider taking the next step in monetary policy action."

Risk Balance Surrounding Japan's Inflation "In the past two years, we have seen significant changes in corporate pricing and wage-setting behavior. It is currently uncertain whether this trend will strengthen or weaken. The impact of currency exchange rate fluctuations and commodity price changes on domestic import prices in Japan is also very critical."

The relationship between wage growth and the timing of interest rate hikes

"If we see wage growth expectations roughly in line with the trend for most of this year, that would be a positive development for us. However, this alone will not directly lead to a sustained process of interest rate hikes."

Domestic political uncertainty and Bank of Japan policy

"Recent developments in Japanese politics alone will not directly affect our price forecasts. However, if there are significant changes in the Japanese political environment, we will adjust our baseline forecasts as necessary, taking into account the potential impacts of these comprehensive measures."