Bank of Japan Governor Kazuo Ueda: More data is still needed to determine the timing of the next interest rate hike

The Governor of the Bank of Japan has reinforced his stance of waiting for more data before making monetary policy judgments, suggesting that he is not in a hurry to raise borrowing costs.

On July 1, according to media reports, Bank of Japan Governor Kazuo Ueda pointed out at the European Central Bank's annual forum held in Sintra, Portugal, that the central bank is closely monitoring the strength of underlying inflation, the potential impact of U.S. tariff policies, and the food inflation that is expected to gradually decline. Ueda stated:

We need more inflation data to make a decision.

Despite Japan's key inflation indicator hitting a two-year high in May and remaining at or above the central bank's target level for more than three consecutive years, Ueda defended a gradual pace of interest rate hikes, arguing that core price growth driven by the wage-inflation cycle remains below the Bank of Japan's target.

Ueda clearly distinguished between overall inflation and underlying inflation. He noted that the current overall inflation rate is above 2%, while the underlying inflation rate is below 2%. He set a clear goal for his term, and when asked about plans before the end of his term in April 2028, he stated:

I hope that by the time I leave, both can stabilize at the 2% level.

According to media reports, about one-third of Bank of Japan observers expect the next rate hike to occur in January next year, while another 30% expect it in October this year. The general consensus is that at the next policy meeting on July 31, the central bank will maintain its current policy settings.

Trade Policy Adds Uncertainty

External risks, particularly from U.S. trade policies, are another key factor keeping Ueda cautious.

In a panel discussion with Federal Reserve Chairman Jerome Powell and European Central Bank President Christine Lagarde, Ueda stated that he hopes to avoid making direct comments on the trade negotiations currently being conducted by the Japanese government.

Analysts believe this avoidance reflects that policy changes from major trading partners could pose significant shocks to Japan's economy and inflation outlook, complicating the Bank of Japan's policy path. The central bank tends to retain policy flexibility until a clearer picture of the external environment is obtained.

Regarding the future policy path, Ueda's remarks reinforced market expectations that the Bank of Japan will take a slow and gradual normalization approach.

He also indicated that it is likely that the reduction of the central bank's balance sheet will not be completed before the end of his term. Just last month, due to increased market volatility, the Bank of Japan had already slowed down its pace of reducing government bond purchases