BoJ Governor Kazuo Ueda reiterated to parliament today that interest rate hikes will continue, though cautiously, once the central bank gains “more conviction that underlying inflation will approach 2% or hover around that level”.
Ueda explained that BoJ still maintains negative real interest rates to support inflation momentum and ensure price growth remains both stable and sustained.
However, Ueda also flagged a significant limitation in policy space should economic conditions deteriorate. With the short-term policy rate still only at 0.5%, the BoJ has “limited room” to cut rates in response to any sharp downturn in growth.
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