By Leika Kihara and Yoshifumi Takemoto
TOKYO (Reuters) – Bank of Japan Governor Kazuo Ueda said on Monday the central bank will raise interest rates further if the economy continues to improve, although he stressed the need to consider various risks when deciding whether to pull the trigger soon.
Ueda last month cited uncertainty about US President Donald Trump's economic policies and Japan's domestic income outlook as reasons to hold off on raising interest rates.
The BOJ has repeatedly said that sustained, broad-based wage increases are needed to keep borrowing costs up, and Prime Minister Shigeru Ishiba on Monday pledged to take steps to raise Japan's minimum wage and boost consumption.
“During the deregulation of Japan, companies increased shares and overseas investment. But domestic investment and consumption were weak. We are finally seeing bright signs of change,” Ishiba told a press conference.
Ueda said he hoped that last year's momentum towards sustainably achieving the bank's 2% inflation target would continue into 2025.
“If economic conditions and prices continue to improve, the BOJ will raise the policy rate accordingly,” Ueda said in remarks at a New Year event hosted by the banking sector's lobby.
“The time to adjust the level of financial support will depend on economic, financial and price developments in the future. We also need to be aware of various risks,” he added.
After ending massive monetary stimulus and raising rates to 0.25% last year, the BOJ has kept markets guessing about how quickly it could hike again. While some investors are betting on the bank's January 23-24 meeting, others see a strong chance for March or beyond.
Japan's benchmark 10-year government bond yield rose 3.5 basis points to 1.125% on Monday, the highest level in 13-1/2 years, partly due to expectations of a near-term hike.
That depends on whether Japanese firms, which have offered their biggest raise in three decades through 2024, will continue to deliver wage increases despite slowing global demand and Trump's threats of higher tariffs.
Many large firms prepare annual wage negotiations in March, although Ueda said the BOJ does not have to wait until then to act.
The central bank's quarterly report on Japan's regional economy, due Thursday, may give insight into the bank's view on wage increases, while Deputy Governor Ryozo Himino may indicate the timing of the rate hike in a speech and press conference on Jan.