TOKYO--Bank of Japan Gov. Kazuo Ueda expressed more confidence that the goal of stable 2% inflation backed by wage growth is within reach, but refrained from hinting at how close the bank is to raising interest rates again.
"The bank judges that the sustainable and stable achievement of the 2% price stability target is now within sight," Ueda said in a speech Wednesday at a meeting of councillors of Japan's biggest business lobby, Keidanren.
"What will the year 2025 look like? Our projection is that the virtuous cycle will further intensify and that Japan's economy will move closer to sustainable and stable 2% inflation, accompanied by wage increases," he said.
Economists and investors expect the central bank to raise interest rates soon, but views are split on the timing. Some expect a rate increase at the BOJ's next meeting in January, while others expect the bank to wait until March when the preliminary results of Japan's annual wage negotiations are released.
The BOJ governor said that since the economy is still transitioning to stable 2% inflation, the bank will maintain accommodative monetary conditions by keeping the policy rate below what it considers to be neutral for now.
But keeping easy monetary conditions for too long heightens the risk that inflation will accelerate beyond the 2% target, which could force the bank to raise interest rates rapidly, he said. If that were to happen it would harm companies' ability to invest and raise wages, thereby hindering Japan's economic growth, Ueda added.
The central bank governor reiterated his pledge that the BOJ will continue to raise interest rates if the economy and prices align with its outlook. He said prices of a wide range of goods and services have begun to rise moderately, reflecting wage growth.
At its meeting last week, the bank left its policy rate unchanged at 0.25%. Ueda said at the time that the bank wants to wait for more clarity on U.S. economic policies under President-elect Donald Trump and for more evidence that wages are growing sustainably in Japan.
On Wednesday, Ueda said uncertainties overseas, including around U.S. policy, remain high, while stressing the importance of higher wages for 2% inflation to take hold in Japan.
Write to Megumi Fujikawa at [email protected]