MNI BOJ WATCH: Ueda Sees Gradual Hikes, May 1 Possibility
MNI (TOKYO) - The Bank of Japan Board will have greater visibility over U.S. tariffs and their impact on businesses and households when it next meets over April 30-May 1, Governor Kazuo Ueda told reporters Wednesday, noting a hike then was not an impossibility.
However, the Bank would prefer to stick to its gradual path amid rising global economic uncertainty, he noted, following the Board’s largely anticipated and unanimous decision to hold the policy rate at 0.5%. (See MNI BOJ WATCH: Board To Hold, Focus On Upside Price Risks)
“The possibility isn’t high that the BOJ falls behind the curve as the rise in services prices wasn’t strong,” he said.
The BOJ will have a better idea on the effect of U.S tariffs on corporate and household sentiment after the U.S. reveals its reciprocal tariff regime on April 2, he added, noting the impact on the global economy and financial markets remains a key concern.
Traders have priced in an 18% chance of a May 1 hike, 4 basis points tighter than before Ueda’s remarks. The market has not fully priced in a 25bp increase until October, unchanged for some time.
DOMESTIC DATA
Wages had continued to perform as expected, though somewhat stronger, Ueda noted, pointing to Friday’s Rengo survey that showed unions had won an average 5.46% rise, up from 2024’s 5.28% increase.
However, he stressed U.S. tariffs and their impact on the global economy and markets had overshadowed the favourable domestic data.
The BOJ’s view on underlying inflation also remained unchanged, he continued, noting it is still below the bank’s 2% target despite high staple food prices that have hit households. The Bank will pay closer attention to the impact of high rice prices on sentiment and real spending, he added.
Underlying inflation was difficult for the BOJ to gauge accurately, Ueda continued, adding the bank is considering new data that it will release in future, although he cast doubt over its potential quality. (See MNI POLICY: BOJ Mulls Underlying Inflation Rework)
Following Wednesday's decision, the BOJ maintained the view that underlying CPI is likely to be at a level generally consistent with the price stability target in the second half of the projection period of the January 2025 Outlook Report.
LONG-TERM RATES
While Ueda reiterated the Bank’s willingness to fend off speculative behaviour in the long-term bond market, he said such conditions did not currently exist, adding short- and mid-term rates had a larger impact on economic activity.
The benchmark 10-year JGB yield rose to 1.575% on March 10, its highest level since October 2008. The bonds were trading at 1.516 at the time of writing.