## Bank of Japan Governor Ueda Signals Potential Rate Hike and Bond-Buying Reduction
Bank of Japan Governor Kazuo Ueda, in a speech delivered on Friday, hinted at the possibility of raising interest rates and reducing the central bank's massive bond-buying program in the future. However, he emphasized the need for continued loose monetary policy for the time being, citing underlying inflation remaining below the 2% target and long-term inflation expectations hovering around 1.5%.
Ueda acknowledged the increased flexibility in the BOJ's policy following the termination of various unconventional easing measures in March. He indicated the possibility of adjusting the short-term interest rate target based on upcoming data.
"We will proceed cautiously, initially assessing the impact of our recent policy changes on the economy and inflation, then considering further adjustment as deemed appropriate, perhaps extracting insights on the neutral rate along the way," Ueda stated during a seminar hosted by the Peterson Institute for International Economics.
While the timing and extent of the bond-buying reduction remain uncertain, Ueda confirmed the BOJ's intention to decrease its purchases of Japanese government bonds (JGBs) in the future. He emphasized a deliberate approach to the decision-making process.
"Irrespective of what the data will say in the near future, we will like to find a way and timing to reduce the amount of JGB purchases," Ueda said, adding that the central bank will take time to reach a decision.
Ueda's remarks align with market expectations of a potential rate hike by the BOJ sometime this year. The central bank's shift away from its focus on reviving growth and quashing deflation through massive monetary stimulus began in March with the termination of eight years of negative interest rates and other unconventional policies.
Markets will closely monitor the BOJ's upcoming policy meeting next week, where fresh quarterly growth and inflation forecasts are expected to be released. Ueda highlighted the importance of scrutinizing data on wages and their potential impact on service prices before deciding on a rate hike.
"If underlying inflation continues to go up," Ueda concluded, "we will very likely be raising interest rates.