Ueda Kazuo informed Takagi Sanae: The Bank of Japan will continue to raise interest rates cautiously

Bank of Japan Governor Kazuo Ueda has sent a clear signal that the Bank of Japan will continue on a cautious path of interest rate hikes.

On Tuesday, after meeting with Prime Minister Sanna Marin, Ueda told the media that he has informed Sanna Marin that the Bank of Japan "is gradually adjusting the degree of monetary easing." He emphasized that the fundamental reason for this adjustment is that "the mechanism of rising prices and wages is recovering."

This meeting comes at a time of turmoil in the Japanese financial markets. This week, both the Japanese stock market and government bonds have declined, with the benchmark 10-year government bond yield reaching a 17-year high. Meanwhile, the yen has fallen below the key psychological level of 155 against the US dollar, and the exchange rate against the euro has hit a historic low of 180. Investors are closely watching the monetary policy stance of the new Prime Minister Sanna Marin and awaiting details of the economic stimulus plan to be announced this week.

Ueda's statements provide key clues for investors seeking policy certainty. He also pointed out that the central bank will make appropriate policy judgments based on data and work closely with the government to jointly monitor exchange rate trends and their impact on the economy. The Bank of Japan's next monetary policy meeting is scheduled for December 19.

Gradual Exit from Easing, Confirming Rate Hike Path

In his remarks after the meeting, Ueda reiterated the Bank of Japan's assessment of the current economic situation, which the market interprets as a hawkish signal to maintain the path of policy normalization.

He clearly stated that a virtuous cycle of rising wages and inflation is forming, which is a prerequisite for the central bank to adjust its ultra-loose monetary policy. Ueda stated:

"In light of this, we are gradually adjusting the degree of monetary easing."

Ueda added that the Bank of Japan will make "appropriate" policy decisions based on economic data.

Market Turmoil and Policy Uncertainty

The backdrop of this meeting is the significant volatility in the Japanese financial markets, highlighting investors' heightened sensitivity to policy prospects.

Since this week, market risk aversion has increased. Both the Japanese stock market and bond prices have fallen, pushing the yield on the 10-year Japanese government bond, which serves as a benchmark for market interest rates, to its highest level in 17 years.

In the foreign exchange market, the yen continues to weaken. The yen has fallen below the important level of 155 against the US dollar, while the exchange rate against the euro has also reached a historic low.

Ueda stated, "We certainly discussed the exchange rate," and reiterated the hope that "the exchange rate trend can stabilize and reflect the fundamentals." He promised that the Bank of Japan "will work closely with the government while closely monitoring (the exchange rate) impact on the economy."

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