Recently, BOJ Deputy Governor Shinichi Uchida’s remarks have drawn significant attention from financial markets, providing key insights into the central bank’s future monetary policy direction. His comments reflect both the BOJ’s cautious stance on monetary policy and its long-term rate adjustment plans.
Speaking on Wednesday, Uchida hinted that the benchmark interest rate would continue to rise gradually, helping to temper market speculation that the BOJ might raise rates sooner than expected. He stated that if economic forecasts hold, “the BOJ will continue to raise policy rates accordingly and adjust the degree of monetary easing.” He also highlighted that achieving the 2% price stability target remains central to the economic outlook, underscoring that the BOJ’s rate decisions are closely tied to economic conditions and inflation targets.
Over the past 12 months, the BOJ has raised rates three times. Uchida emphasized that policymakers need to monitor how the economy responds to each rate hike, as accurately determining the neutral interest rate level is challenging. The neutral rate, which is neither restrictive nor stimulative, remains uncertain, adding complexity to monetary policy adjustments.
Regarding short-term rate hike plans, while Uchida reiterated the BOJ’s stance on gradually raising policy rates, he offered little indication that the central bank would act again soon after the January hike. This suggests that the BOJ is unlikely to raise rates at consecutive meetings, making a rate hike in March less probable.
However, the market is not entirely convinced that the BOJ will remain on hold. A series of recent economic data releases, persistent yen weakness, and concerns over soaring food prices have led some economists to warn of the risk of an earlier rate hike. For instance, former BOJ policy board member Sayuri Shirai noted in February that if former U.S. President Donald Trump moves forward with tariff threats, intensifying inflationary pressures in Japan, the BOJ might hike rates in March.
As Japan’s recent economic and inflation trends align with the BOJ’s expectations, investors have increased their bets on a faster pace of rate hikes and higher terminal rates. As of Tuesday, traders priced in a 48% chance of another BOJ rate hike before June, up from 18% after the January policy meeting.
Uchida also suggested that, based on various estimates, the benchmark interest rate could rise to at least 1% by the end of fiscal 2026. He noted that when the BOJ achieves its price stability target between the second half of fiscal 2025 and fiscal 2026, policy rates will likely approach the neutral level. Additionally, he stressed that healthy financial market operations require market participants to fully understand the BOJ’s policy reaction function. He cautioned against merely providing forward guidance on future policy rates, as this could undermine the market’s role in price discovery.
Uchida’s remarks come against the backdrop of growing global protectionism concerns. Trump’s tariff threats have raised fears about the global economic outlook, and Uchida acknowledged that “global economic uncertainty remains high and requires continued attention.” This highlights that the BOJ must consider not only domestic economic conditions but also shifts in the global economic landscape when formulating monetary policy.
Given Uchida’s close working relationship with BOJ Governor Kazuo Ueda and his role as a key architect of monetary policy, the market pays close attention to his statements. His speech in February last year outlined a potential roadmap for ending Japan’s decade-long ultra-loose monetary policy, and the BOJ acted just a month later. As a result, Uchida’s latest comments serve as a crucial reference for forecasting the BOJ’s future policy direction.
Overall, while speculation about an earlier rate hike persists, Uchida’s statements and the BOJ’s policy logic suggest that a rate hike in March is unlikely. However, the trend of gradually raising the benchmark interest rate is clear. Investors and market participants should closely monitor economic data, global economic conditions, and future BOJ statements.
