BY LEIKA KIHARA AND MAKIKO YAMAZAKI
TOKYO- The Bank of Japan kept interest rates steady on Wednesday and warned of heightening global economic uncertainty, suggesting the timing of further rate hikes will depend largely on the fallout from potentially higher US tariffs.
But Governor Kazuo Ueda also said rising food costs and stronger-than-expected wage growth could push up underlying inflation, highlighting the central bank’s attention to mounting domestic price pressures.
“Japan’s wage and price conditions are on track, possibly stronger than expected. But the uncertain US and global outlook makes it difficult to assess the potential impact on Japan’s economy,” Ueda told a press conference.
“As such, we would like to look at upcoming data in early April, to reconsider our forecasts,” Ueda said.
He offered few hints on the next rate-hike timing, but said the BOJ did not necessarily need to wait until everything is clear on the impact of US tariffs, in pulling the trigger.
“While there might be factors we may not find out (about) until much later, there are factors we will know fairly soon such as changes in public sentiment,” Ueda said. “We’ll make sure not to be too behind the curve” in dealing with domestic inflation risks, he added.
Having just raised interest rates in January, the board voted unanimously to maintain the bank’s short-term policy rate at 0.5 percent in a widely expected move.
The decision came as fears of a global slowdown caused by US President Donald Trump’s tariff policy overshadow wage and price data showing Japan is making progress in durably achieving the BOJ’s 2 percent inflation target.
“Overseas uncertainty has heightened significantly,” and is already affecting the US and global economies, Ueda said.
The yen swung between losses and gains shortly after the BOJ’s decision, though later traded lower. It last edged down 0.2 percent to 149.56 per dollar
“Ueda’s comments were balanced and showed the BOJ was very mindful of the impact of rising food prices,” said Atsushi Takeda, chief economist at Itochu Economic Research Institute.
“He wasn’t talking just about overseas risks but mentioning the strong outcome of wage talks several times, suggesting he isn’t as cautious about Japan’s economic outlook as markets think,” said Takeda, who expects the BOJ to hike rates in July.
