The possibility of a rate hike in March is low! Bank of Japan Deputy Governor: The benchmark interest rate will continue to rise gradually

According to the Zhitong Finance APP, Shinichi Uchida, Deputy Governor of the Bank of Japan, hinted that the benchmark interest rate will continue to rise gradually. This statement may quell speculation about the Bank of Japan raising interest rates ahead of schedule. In a speech on Wednesday, Uchida stated that if the economic outlook is realized, "the Bank of Japan will continue to raise the policy interest rate accordingly and adjust the degree of monetary easing." He added, "In this regard, the key point of the economic outlook is that the central bank expects the 2% price stability target to be achieved."

The Bank of Japan has raised interest rates three times in the past 12 months. Uchida indicated that officials will have to monitor the economy's response to each rate hike, as it is difficult to accurately determine the level of a neutral interest rate that is neither restrictive nor stimulative.

Although Uchida reiterated the Bank of Japan's position to continue raising the policy interest rate, he gave little indication that the Bank of Japan is inclined to take action ahead of schedule after a rate hike in January. This suggests that the Bank of Japan is unlikely to raise rates at two consecutive meetings, meaning that after the January rate hike, it is unlikely to raise rates again in March.

As Uchida made these remarks, observers of the Bank of Japan are looking for any signs that the next rate hike may occur earlier than the market generally expects in the summer. A recent series of economic data, the continued weakening of the yen, and increasing concerns over soaring food prices have prompted some economists to suggest the risk of the Bank of Japan raising rates ahead of schedule. For example, former Bank of Japan Policy Board member Sayuri Shirai stated in February that if U.S. President Trump pushes forward with his tariff threats and exacerbates the already rising inflationary pressures in Japan, the Bank of Japan may raise rates in March.

As recent data from Japan shows that economic and inflation trends are in line with the Bank of Japan's expectations, investors have increased their bets on the pace of rate hikes by the Bank of Japan, believing that the central bank will raise rates faster than previously expected and that the benchmark interest rate will reach higher levels. As of Tuesday, traders estimated that the likelihood of the Bank of Japan raising rates again before June was about 48%, up from 18% after the January policy meeting.

Uchida suggested that, based on a series of estimates, the benchmark interest rate could rise to at least 1% by the end of the fiscal year 2026. He stated that when the Bank of Japan achieves its price target sometime between the second half of fiscal year 2025 and fiscal year 2026, the policy rate will be close to the neutral rate. He said, "The healthy functioning of financial markets requires market participants to accurately understand the central bank's policy response function. Therefore, I believe that the central bank merely conveying the 'answer' to future policy rates may jeopardize the market's valuable information-creating function."

Meanwhile, Uchida's remarks come against a backdrop of increasing concerns about global protectionism. The tariff threats wielded by Trump have raised worries about the global economic outlook. Uchida stated, "Global economic uncertainty remains high and requires continued attention."

It is worth noting that Uchida is regarded as one of the most important monetary policy designers at the Bank of Japan and works closely with Bank of Japan Governor Kazuo Ueda, making his remarks particularly significant to observers of the Bank of Japan. In a speech last February, Uchida clearly expressed how the Bank of Japan might end its decade-long ultra-loose monetary policy, and a month later, the Bank of Japan indeed did so