Bank of Japan Governor Speaks Out for the First Time After Illness: Will Raise Interest Rates Again at an Appropriate Time, Inflation Risk Remains

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Bank of Japan Governor Kazuo Ueda made his first public statement since recovering from illness, reiterating that the risk of inflation exceeding the 2% target still exists, and that the central bank will push forward further rate hikes at an appropriate time.

In a speech delivered on Wednesday, Ueda stated, as underlying inflation approaches 2% and financial conditions remain loose, the central bank expects to continue raising rates and adjusting the degree of monetary easing in response to changes in economic activity, prices, and financial conditions. Due to Ueda's prior hospitalization for a liver cyst infection, the speech was read by Deputy Governor Ryozo Himino. Ueda returned to work only on Tuesday.

This statement is consistent with the signals conveyed at last week's Bank of Japan policy meeting—which was also held in Ueda's absence. The Monetary Policy Committee voted by a majority of 7-1 to raise the benchmark interest rate to 1%, the highest level since 1995. The summary of opinions released by the bank on the same day also showed that most committee members believe further rate hikes are necessary. However, the realization of rate hike expectations did not boost the yen; the yen is currently hovering near a 40-year low, and FX market traders continue to watch whether authorities will intervene.

First public remarks since illness, stance remains consistent with last week's meeting

In his speech, Ueda reaffirmed the Bank of Japan’s usual policy stance, without releasing any new policy signals. The content closely matched the official communication after last week’s rate decision.

He pointed out that the timing and pace of rate hikes will depend on a range of factors, such as the impact of the Iran war. This is a rare public statement from a Bank of Japan official explicitly including geopolitical risk in monetary policy considerations.

Last week, the Bank of Japan raised the benchmark rate to 1%, the highest level since 1995. The opinion summary released the same day further bolstered market expectations for a continued path of rate hikes—multiple committee members expressed the need to further tighten monetary policy in the summary.

This rate hike was widely expected by the market, but its boost to the yen was extremely limited. The yen-dollar exchange rate continues to fluctuate near a 40-year low, keeping the FX market highly vigilant, as traders closely watch for any signals that might trigger official intervention.

External risks like the Iran situation set constraints on policy path

Ueda specifically mentioned the uncertainty of the Iran war affecting the pace of rate hikes, indicating that the Bank of Japan remains cautious about external shocks while advancing monetary policy normalization.

Currently, the central bank faces a core challenge: on one hand, underlying inflation continues to approach the 2% target, providing grounds for further rate hikes; on the other hand, geopolitical risks and sustained weakening of the yen bring import-driven inflationary pressures, making policy decisions more complex. The market will continue to closely follow Ueda’s subsequent speeches and signals from the next central bank policy meeting.

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