Ueda: BOJ to keep hiking as underlying inflation nears 2%

• He wants to establish a neutral-rate estimate while accounting for how previous increases have cumulatively affected financial conditions and domestic prices.
• Japan's neutral rate of interest is not something he can characterize clearly, Ueda said.
• The main thing he took from this week's meetings was an exchange of views with other policymakers about how the Middle East conflict and AI demand could influence the global and Japanese economies and inflation.
• As he has said before, policy is in a new phase; with underlying inflation very close to 2%, the BOJ cannot tolerate any further rise in inflation.
• Given how near underlying inflation is to 2%, anchoring inflation around the target carries more weight than it used to.
• He has not been in contact with US Treasury Secretary Bessent since their Asheville meeting.
• Decisions on when and how fast to hike rates will take account of how FX, AI demand and Middle East events feed into prices.
• At the upcoming meeting, the BOJ will discuss whether to revise its assessment that underlying inflation is approaching 2%.
• Ueda said nothing he heard at this week's meetings fell outside the BOJ's baseline view.
• Economic activity and price developments are broadly consistent with the BOJ's projections.
• The BOJ will keep raising rates because underlying inflation is moving toward 2% and financial conditions remain accommodative.
• At this meeting, he sensed that somewhat more policymakers than the BOJ had estimated were bullish on AI demand.
• His conversations with global policymakers revealed no big difference from the BOJ's own assessment of inflationary pressure coming from AI demand.

Bank of Japan Governor Kazuo Ueda, speaking at the IMF meetings, said the central bank will keep raising rates as underlying inflation moves closer to 2% and financial conditions remain accommodative. The policy rate is 1.25% for now, and while market pricing points to only a small chance of a hike on October 30, the odds of a move at the December 18 meeting are seen at 75%.

Ueda described policy as now being in a new phase, saying the bank cannot allow inflation to climb any higher. With underlying inflation already quite near the 2% goal, it matters more than ever to keep inflation anchored around that level. At the next meeting, the BOJ will consider whether to change its assessment that underlying inflation is moving toward 2%, he said.

The timing and speed of future rate rises will be determined by the effect of foreign-exchange moves, AI demand and Middle East events on prices. The economy and inflation are developing roughly as forecast, and Ueda said nothing from this week's meetings contradicted the bank's baseline view.

Turning to AI, he said more policymakers than he had anticipated were bullish on AI demand. There was, however, no meaningful divergence between the BOJ's read on AI-related price pressure and what global policymakers told him.

Japan's neutral interest rate is still hard to determine, Ueda said. He had an exchange of views with Fed Chair Warsh but would not comment on it, and he said he has not been in touch with Treasury Secretary Bessent since their meeting in Asheville — a point that stands out on the intervention front.

USD/JPY was flat at 158.00 on the day, while the dollar was broadly softer against other currencies.