Kazuo Ueda, governor of the Bank of Japan (BOJ), again signaled his intention to raise interest rates further.
According to the Nihon Keizai Shimbun, Ueda said in a speech at the deliberative council of the Japan Business Federation (Keidanren) held in Tokyo on the 25th that "if the outlook for the economy and prices materializes, we will continue to raise the policy rate to adjust the degree of monetary easing." This is seen as a declaration to escape the long-standing trap of low inflation and low growth and return to a normal interest rate framework.
In the speech, Ueda assessed that the so-called Zero Norm, which has dominated Japanese society, is coming to an end. The Zero Norm refers to a social convention that takes it for granted that prices and wages do not change.
Ueda said, "The likelihood of returning to a world where wages and prices hardly changed has become very low," stressing that the structure of Japan's economy is fundamentally changing. In fact, the Bank of Japan expects solid wage growth to continue next year as well.
Ueda then wrapped up the speech by again emphasizing that this is normalization, not tightening, saying, "An appropriate adjustment of the degree of easing is the smooth path to achieving the price stability target."
On the 19th, the Bank of Japan held a monetary policy meeting and raised the benchmark rate by 0.25 percentage points, from 0.5% to 0.75%. It is the first time in 30 years since 1995 that Japan's benchmark rate has exceeded 0.5%. At that meeting, all nine Commissioners voted unanimously for the increase, sending a strong message to the market. In this speech as well, Ueda said, "The current real interest rate remains extremely low," explaining that appropriately adjusting rates will provide a foundation for corporations to conduct business with confidence and become a driver of long-term growth.
Market experts predicted that the Bank of Japan will maintain a gradual tightening stance next year. Citing market survey results, financial analysis outlet EBC Financial Group reported that "the prevailing view is that Japan's benchmark rate will reach 1.0% in September next year." However, there is caution about the pace of increases. ANZ analysts said in a recent report that "the Bank of Japan may take an extended pause after this hike," suggesting it is necessary to watch the weak yen and the trajectory of import prices.
External variables are also complex. Protectionism and tariff policy led by U.S. President Trump could burden Japanese export corporations. The upward pressure on import prices due to the yen's depreciation is another factor prompting the Bank of Japan to toy with the rate card. Japan Finance Minister Satsuki Katayama said, "The government will take appropriate measures against excessive movements in the exchange rate," aligning with the Bank of Japan.