Ueda: inflation close to 2%, keeping December BOJ hike on the table

Kazuo Ueda, governor of the Bank of Japan, is speaking in Tokyo, and his remarks so far have contained nothing unexpected. The signal is still plain: the central bank sees room to keep raising interest rates.

Below are some of Ueda's key comments:

• Underlying inflation is getting closer to 2%
• Economic activity and prices are developing in line with the bank's baseline forecasts
• Financial conditions are still accommodative and are keeping the recovery on track even after the rate increase in September
• The policy rate will continue to be raised in line with developments in the economy, prices and finance
• The pace and timing of future policy adjustments will depend on the likelihood that the baseline projections materialise and on the associated risks

The first point is the striking one: Ueda has again said underlying inflation is moving toward the BOJ's 2% level.

That lines up with the earlier report that the bank could take an additional step in its October outlook and acknowledge that underlying inflation has essentially reached the 2% target. By itself, that would be more of a symbolic gesture than an immediate trigger for another rate increase. Taken together with Ueda's comments, however, it strengthens the case that the BOJ could well tighten policy again in December.

Ueda also continues to characterise financial conditions as accommodative, showing that the BOJ does not see the most recent rate rise as especially restrictive for the economy.

That does not necessarily mean an October hike is on the way, though. Policymakers remain wary about acting at consecutive meetings, and the earlier report indicated they may prefer not to move too aggressively for now.

December, though, could be a different situation.

Markets currently price in about a 64% chance of another rate rise by December; if the October outlook formally recognises that underlying inflation has reached 2%, the bar for another hike gets lower.

In any case, the governor's remarks keep driving home the main message that rates are probably still moving upward. The bigger question is how fast the BOJ wants to go.