BOJ's Ueda hints at further rate hikes, warns of cumulative effects

Ueda's remarks adopt a measured stance, allowing for additional tightening but not specifying a timetable, thereby leaving September rate expectations unchanged without confirming them. By attributing the recent rise in long-term yields mainly to global factors rather than domestic policy, Ueda may alleviate worries that the BOJ views its own rate increases as disruptive to the JGB market, despite the benchmark yield hovering near 3%. Meanwhile, his recognition that upside price risks still factor into policy decisions, together with core inflation near the 2% target, maintains a hawkish bias. Katayama's statements about watching debt markets with extreme urgency, combined with his avoidance of specific JGB yield levels, indicate the finance ministry is monitoring closely but not hinting at immediate action.

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Earlier:

• Ueda declines to comment on market pricing of a September rate hike

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Ueda leaves room for further rate increases but advises caution about the economy's capacity to absorb tightening.

Summary:

• Ueda says the BOJ intends to keep hiking rates as monetary policy remains accommodative.
• Ueda notes the BOJ has increased its policy rate five times and must carefully assess the cumulative effect on the economy.
• Ueda says the BOJ will also consider upside price risks when making policy decisions.
• Ueda says the next board meeting will discuss whether the economic outlook is more likely and whether inflation risks have increased.
• Ueda says core inflation is very near 2% and the BOJ must ensure it stabilizes around that target.
• Ueda says recent rises in long-term yields are mainly due to global increases, and the economic impact depends on the drivers.
• Ueda says the BOJ will not respond more aggressively to FX movements alone when setting policy.
• Finance Minister Katayama declines to comment on the 3% JGB yield, noting rates are market-driven, but says he is monitoring debt markets with extreme urgency.
• Katayama says Japan will manage its debt policy properly while keeping close communication with markets, and he considers the total budget requests reasonable.
• Katayama says he had a 30-minute discussion with Fed Chair Warsh, and separately noted that Bessent stated it is appropriate to pursue higher growth potential and productivity through domestic investment.

BOJ Governor Kazuo Ueda indicated the central bank's intention to keep raising rates, telling reporters that monetary conditions are still accommodative and the BOJ wants to continue tightening. He noted the BOJ has already raised its policy rate five times and said officials must carefully examine the cumulative impact of these hikes on the economy. Nevertheless, Ueda said the BOJ will also factor in upside price risks in its discussions, keeping a hawkish option available.

Ueda said the upcoming board meeting will specifically address whether the probability of the BOJ's economic scenario has risen and whether inflation risks have increased, positioning the meeting as a real decision point rather than a routine one. He added that core inflation is very close to the BOJ's 2% target, and the bank's goal is to ensure it stabilizes around that level rather than rising above or falling below.

Regarding the recent increase in long-term JGB yields, which has brought the benchmark close to 3%, Ueda said the moves are mainly due to global yield rises rather than Japan-specific domestic factors. He said the eventual impact on the economy depends on the drivers of the yield moves, implying the BOJ does not see the rise as an immediate policy concern. Ueda also directly addressed the exchange rate, stating the BOJ will not concentrate on FX alone nor respond more aggressively than before to currency moves, pushing back against the notion that a weaker yen alone would prompt action.

Finance Minister Katayama, speaking alongside Ueda, declined to comment specifically on the JGB yield's move toward 3%, saying rates are determined by markets based on various factors. He said Japan is monitoring debt markets with extreme urgency and will manage debt policy appropriately while keeping close communication with markets, adding that he considers the government's total budget requests reasonable. Katayama also said he had a 30-minute conversation with Fed Chair Warsh, and separately noted that Treasury Secretary Bessent said it is appropriate for countries to aim for higher growth potential and productivity through domestic investment, a theme that featured in several side conversations at the G20.