Kazuo Ueda informs Sanae Takaichi: The Bank of Japan will continue to raise interest rates cautiously.

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

On Tuesday, after meeting with the Prime Minister, Kazuo Ueda told the media that he had informed Sanae Takaichi 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 price and wage increases together is recovering."

This meeting comes at a time of turmoil in the Japanese financial markets. This week, both Japanese stocks and government bonds have fallen, with the benchmark 10-year government bond yield hitting a 17-year high. Meanwhile, the yen-dollar exchange rate fell below the key psychological barrier of 155, and the euro-yen rate hit a historic low of 180. Investors are closely monitoring the monetary policy stance of the new Prime Minister Sanae Takaichi and are awaiting details of the upcoming economic stimulus package this week.

Ueda's remarks provide key clues to investors seeking policy certainty. He also pointed out that the central bank will make appropriate policy decisions based on data, and work closely with the government to monitor exchange rate trends and their impact on the economy. The BOJ’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 BOJ’s assessment of the current economic situation, which was interpreted by the market as a hawkish signal of sticking to the path of policy normalization.

He made it clear that a virtuous cycle of simultaneous wage and inflation growth is emerging, which is a prerequisite for the central bank to adjust its ultra-loose monetary policy. Ueda said:

"In view 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 Turbulence and Policy Uncertainty

This meeting comes against the backdrop of significant volatility in Japanese financial markets, highlighting investors' acute sensitivity to policy prospects.

Since the start of this week, risk aversion has increased. Japanese stocks and government bond prices have both fallen, pushing the benchmark 10-year Japanese government bond yield to its highest level in 17 years.

In the foreign exchange market, the yen has continued to weaken. The yen-dollar exchange rate broke through the important 155 level, and the yen-euro rate also hit a historic low.

Ueda stated, “Of course, we discussed foreign exchange rates,” and reiterated his hope that “exchange rate movements will be stable and reflect fundamentals.” He pledged that the Bank of Japan “will work closely with the government and closely monitor the (exchange rate) impact on the economy.”

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