By Leika Kihara
ASHEVILLE, North Carolina, Sept 1 (Reuters) – Bank of Japan Governor Kazuo Ueda vowed to continue raising interest rates to adjust still-accommodative financial conditions and debate this month whether upside inflation risks were heightening, keeping alive the chance of a September hike.
While he offered few clues on the next rate-hike timing, Ueda said he hoped to discuss with the board this month whether the likelihood of the BOJ’s economic scenario materialising was heightening and whether upside price risks were increasing – both prerequisites for further rate increases.
“We hope to continue raising interest rates as financial conditions remain accommodative. On the other hand, we’ve raised rates five times so far, so we need to carefully assess the cumulative impact on the economy,” Ueda said.
“Having said that, we will set policy mindful of upside risks to inflation,” he told a news conference on Tuesday after attending the G20 finance leaders’ gathering.
The remarks came in the wake of a statement by the U.S. Treasury Department saying Treasury Secretary Scott Bessent met Ueda and called for “decisive” monetary steps to combat the weak yen – cementing the case for a Japanese rate hike this month.
Ueda confirmed the meeting with Bessent on Sunday but did not comment on what was discussed.
Recent data suggests that economic and price conditions were moving roughly in line with its projections in a quarterly outlook report in July, Ueda said, adding that the BOJ’s basic approach on monetary policy remained unchanged.
With underlying inflation quite close to the BOJ’s 2% target, the BOJ must pay particular attention to inflationary risks in guiding policy, Ueda said.
Among key factors to scrutinise were upside price risks from the Middle East conflict, robust AI-related demand and the boost to inflation from a weak yen, he said.
“We will scrutinise whether the economy and prices are moving in line with our baseline scenario, as well as risks,” Ueda said. “We will debate these factors thoroughly, including at our next policy meeting.”
Ueda declined to comment when asked about markets near fully pricing in the chance of a rate hike at the upcoming policy meeting on September 17-18.
The BOJ raised interest rates to a 31-year high of 1% in June on the view Japan was on the cusp of durably hitting its 2% inflation target. It kept rates steady in July but signalled a strong chance of a near-term hike on mounting price pressures from the Middle East war and a weak yen.
Bessent’s repeated calls for higher BOJ rates and a slew of hawkish communication from the central bank have led markets to near fully price in the chance of a rate hike this month.
(Reporting by Leika Kihara; Editing by Christopher Cushing and Sam Holmes)
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