BOJ's Ueda signals readiness to raise rates if growth re-accelerates
By Leika Kihara and Makiko Yamazaki
TOKYO (Reuters) -Bank of Japan Governor Kazuo Ueda said on Tuesday the central bank will raise interest rates once it is convinced enough that economic and price growth will re-accelerate after a period of stagnation.
Ueda also signaled the central bank will continue to taper its huge bond buying even after an existing plan running through March expires, underscoring its resolve to stay on course for a slow but steady withdrawal of ultra-easy policy.
The hit from higher U.S. tariffs on Japan's economy could first come from a drop in exports, which could hurt corporate profits and consumer sentiment, Ueda said.
"U.S. tariffs could weigh somewhat on Japanese companies' winter bonus payments and next year's wage talks with unions," Ueda told parliament.
"Wage growth may slow somewhat. But we expect economic and wage growth to re-accelerate" and keep consumption on a moderate uptrend, he added.
The BOJ ended a massive stimulus last year and in January raised short-term interest rates to 0.5% on the view Japan was on the cusp of durably hitting its 2% inflation target.
While the central bank has signalled a readiness to raise rates further, the economic repercussions from higher U.S. tariffs forced it to cut its growth forecasts in May.
Stubbornly high food prices, blamed largely on rising import costs and soaring rice prices, have also complicated the BOJ's rate decisions by simultaneously hurting consumption and keeping headline inflation well above its target.
The BOJ is keeping interest rates low even as headline inflation hit 4.6% in April - well above its 2% target - as it expects the rise in food prices to slow, Ueda said.
Underlying inflation - or price rises driven by domestic demand and higher wages - remains short of 2%, but will likely re-accelerate after a period of stagnation, Ueda said.
"If we're convinced our forecast will materialise, we will adjust the degree of monetary support by raising interest rates," Ueda said, noting that uncertainty over the outlook was "extremely high".
A Reuters poll, taken on May 7-13, showed most economists expect the BOJ to hold rates steady through September with a small majority forecasting a hike by year-end.
At its next policy meeting on June 16-17, the BOJ will conduct a review of its existing bond-taper plan and lay out a new programme for April 2026 onward.
The plan is drawing market attention as concern over Japan's worsening finances and dwindling demand from domestic investors caused a spike in super-long government bond yields last month.
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