The Yen weakens following Ueda’s remarks in Osaka

Bank of Japan Governor Kazuo Ueda has confirmed that inflation rates in Japan remain on track towards the bank’s 2% target.

Kazuo, however, warned that global uncertainties may discourage firms from raising wages, leaving the timing of the central bank’s next rate hike unclear.

Kazuo met with local business leaders in Osaka today to reiterate the BOJ’s commitment to keep raising interest rates if the economy and prices move in line with its forecasts. However, he refrained from offering any clear signal on whether the board would act at its next policy meeting later this month.

The Yen weakens following Ueda’s remarks in Osaka

Governor Kazuo Ueda revealed today that policymakers will monitor developments in the global economy, wage and price trends, and the impact of U.S. tariffs on Japan’s corporate profits before making their next decision.

“If the baseline scenario for economic activity and prices outlined so far is realized, the bank, in accordance with improvement in economic activity and prices, will continue to raise the policy interest rate.”

–Ueda Kazuo, BOJ Governor

The Bank of Japan Governor emphasized risks surrounding Japan’s outlook, citing signs of weakness in the U.S. labor market and the potential pullback from higher American tariffs. According to Ueda, if uncertainty regarding overseas economies and trade policies remains high, firms may place stronger emphasis on cost-cutting and may weaken their efforts to reflect wage increases. He revealed that the future course of the U.S. economy and the conduct of monetary policy could significantly impact Japan’s economy and prices, prompting them to monitor the situation closely.

Following Ueda’s remarks, the yen weakened by 0.35% to around 147.67 against the dollar at the time of publication. Akira Moroga, Chief Market Strategist at Aozora Bank, said that the governor’s dovish comments prompted the sell-off.

Bloomberg report revealed that traders in the overnight swaps market see a 60% chance of a move at the October 29–30 meeting, up from about 22% in early September. However, some economists expect that a decision to change the rates could come later, in December, depending on incoming data. Shotaro Mori, senior economist at SBI Shinsei Bank, revealed that if the tariff impact intensifies, hard data on Japan’s third-quarter economic growth and corporate profits would be more decisive than Governor Ueda’s latest speech.

Ueda says inflation is likely to increase, keeping the market guessing

The Osaka address followed the release of the BOJ’s Tankan survey earlier this week. Deputy Governor Shinichi Uchida stated that the survey indicates business sentiment remains at favorable levels, suggesting the economy is developing in line with the central bank’s projections. That is an essential condition for further tightening, though Ueda stopped short of signaling a clear path.

At the September meeting, two members, Naoki Tamura and Hajime Takata, voted in favor of a rate hike, marking the first time under Ueda’s tenure that more than one member dissented. A dovish policymaker has also recently called for considering a shift sooner, reinforcing speculation that the bank is edging closer to its subsequent adjustment.

Ueda addressed inflation issues directly, saying the underlying inflation, which excludes temporary or one-off factors, is likely to increase alongside actual price increases. His remarks marked a shift from the BOJ’s policy statement in September, which suggested underlying inflation would remain sluggish before gradually increasing. The governor also warned that prolonged rises in food prices could weigh on consumption and dampen broader inflationary momentum.

Japan’s inflation has maintained above the BOJ’s 2% target for more than three years, but the central bank’s policies have been cautious. The BOJ ended its decade-long stimulus program last year and raised interest rates to 0.5%  in January, marking its first hike in years. Ueda has since emphasized the importance of ensuring that price gains are backed by wage growth and robust domestic demand before tightening further.

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