BOJ Governor Sees Increased Likelihood of Wage-Driven Inflation

Bank of Japan (BOJ) Governor Kazuo Ueda expressed optimism on Monday about Japan's progress toward achieving sustained inflation driven by rising wages, signaling that conditions for future interest rate hikes are gradually improving, as reported by Reuters.

In a speech to business leaders in Nagoya, Ueda stated, "We expect wage-driven inflationary pressure to heighten, as the economy continues to improve and companies keep hiking pay." This positive assessment suggests that the BOJ is increasingly confident that the prerequisites for raising interest rates are falling into place.

However, Ueda also cautioned that the central bank must remain attentive to external risks, including lingering uncertainty regarding the US economic outlook and the potential for renewed financial market volatility.

"The chance of the U.S. economy achieving a soft-landing scenario appears to be increasing. But we still need to scrutinise developments," Ueda noted. He also acknowledged that market sentiment was improving due to reduced concerns about the US economy, but emphasized that the possibility of future volatility persists due to various geopolitical risks.

Ueda reiterated the BOJ's commitment to raising interest rates if economic and price developments align with its forecasts. He emphasized, however, that the timing of any rate adjustments will depend on the overall economic, price, and financial outlook.

The BOJ's lack of specific guidance on the timing of its next rate hike appeared to support the dollar, which strengthened against the yen following Ueda's remarks.