The Bank of Japan remains steady, Ueda Kazuo admits that the "risk of policy lag" is not yet a concern, but worries about the trade war are emerging

According to the Zhitong Finance APP, the Bank of Japan decided to maintain interest rates unchanged during its meeting this week and decided to slow down the pace of balance sheet reduction next year, indicating the bank's inclination to cautiously eliminate the lingering effects of a decade-long massive stimulus policy.

After the two-day policy meeting, the Bank of Japan voted unanimously, as the market widely expected, to keep the short-term interest rate at 0.5%.

Bank of Japan Governor Kazuo Ueda later answered reporters' questions at a press conference:

On the possibility of a short-term rate hike

"I will not comment on the possibility of a rate hike in the near term. However, I can say that we will closely monitor the upcoming economic data. We also need to observe whether the currently high overall inflation will ease and whether it will affect potential inflation. This will be a decision-making process that comprehensively considers various data."

On uncertainty and the timing of the next rate hike

"Given the extremely high uncertainty, it is more necessary than ever to broadly reference various information when formulating policies... Although an increasing number of sentiment surveys indicate a weakening economy, actual economic data remains robust. As for the timing of the next rate hike, it depends on our level of confidence in the possibility of achieving the 2% inflation target sustainably."

On the impact of expected fiscal assistance on households

"This type of spending is more likely to alleviate the impact of rising prices on consumption rather than pushing up inflation, and it helps achieve sustained growth in consumption. On the other hand, the impact of U.S. tariff policies may intensify in the second half of this year."

On the risk of policy lag due to delayed rate hikes

"I do not believe we are currently facing this situation. Although potential inflation is accelerating, it has not yet reached the 2% target, and the growth rate is controllable. However, we cannot rule out the risk that high overall inflation could influence potential inflation by raising inflation expectations."

On the impact of trade tensions on corporate bonuses and wage negotiations

"Trade uncertainty may suppress corporate winter bonuses and wage negotiations (with unions) for next year. It is currently difficult to estimate the specific timing of the impact. We may need to wait for actual data or estimate (wage prospects) through corporate earnings."

On the situation in the Middle East, oil prices, and Japan's inflation outlook

"Along with the continuous rise in food prices, if the fluctuations in oil prices caused by tensions between Iran and Israel persist, they may affect inflation expectations and potential inflation. Therefore, we must carefully monitor the developments."

On the potential impact of trade tensions

"On the other hand, the impact of trade tensions may primarily manifest through a decline in manufacturing profits. This may prompt companies to re-adopt cost-cutting pricing strategies. Such risks should not be ignored. Therefore, we need to remain vigilant about various risks."

On the impact of U.S. trade policies on economic prospects

"Even if U.S. trade policies stabilize in a certain direction, their impact on the economy remains highly uncertain."

On slowing the pace of bond purchase reductions starting in the fiscal year 2026

"It is appropriate to continue reducing the scale of bond purchases to allow yields to more freely reflect market forces. However, a too-rapid reduction may have unexpected impacts on market stability."

On the risks to price outlook "Recent data shows that the consumer inflation rate fluctuates around 3%. However, this is mainly due to rising import costs and rice prices... It is expected that these pressures will gradually dissipate. That said, the price outlook still faces bidirectional risks. It is important to note that cost-push pressures may alter household sentiment and inflation expectations, thereby affecting potential inflation."

On the Uncertainty of Trade Policies

"There is currently a high level of uncertainty regarding trade policies among countries. Therefore, the Japanese economy and prices face greater downside risks."