Kazuo Ueda, the Governor of the Bank of Japan (BoJ), indicated that the Japanese economy has successfully navigated the impacts of U.S. tariffs, which supports market anticipations for an interest rate increase during the central bank’s upcoming meeting. In an interview with the Financial Times ahead of the crucial December monetary policy meeting, Ueda noted a steady rise in underlying inflation approaching the BoJ’s 2 percent target.
His statements came at the FT’s Global Boardroom event and suggest that the BoJ is contemplating raising interest rates from the current 0.5 percent to 0.75 percent, the highest level in three decades. Previous remarks from Ueda hinted at evaluating the “pros and cons” of such a decision, a point investors have interpreted as a likely raise. Current trading in interest rate swaps indicates a 91 percent probability of an increase at the conclusion of the BoJ’s two-day meeting on December 19.
While earlier fears regarding U.S. tariffs prompted caution from the BoJ, Ueda expressed that the impact had been less severe than anticipated. He noted that U.S. companies have largely absorbed tariff costs without fully passing them on to consumers. Additionally, Japanese car manufacturers have adapted by reducing prices, thereby stabilizing auto exports and mitigating unemployment.
Meanwhile, Japan’s Finance Minister Satsuki Katayama emphasized close monitoring of market trends, particularly as government bond yields approach 2 percent. As yields on Japanese government bonds have risen steadily, Ueda stated that fiscal sustainability is a priority for the government. The yen has shown some strength against the U.S. dollar recently, amid expectations that a rate increase from the BoJ could help prevent further depreciation.
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