Bank of Japan Considers Rate Hike Amid Wage Growth Concerns

The Bank of Japan is considering the possibility of a rate hike in the near future, focusing on next year’s wage growth impact, according to Governor Kazuo Ueda. The central bank’s upcoming policy meetings will delve into discussions regarding the feasibility and timing of this potential rate increase, with the next meeting scheduled for December 18 and 19.

Recent data revealing that core consumer inflation has continued to maintain levels above the BOJ’s 2% target in October has added fuel to the speculation of an impending rate hike. Governor Ueda highlighted concerns regarding the impact of a weak yen on inflation, especially through increased import costs and overall prices.

In a parliamentary session on Friday, Ueda emphasized the importance of monitoring currency fluctuations and their influence on inflation expectations and underlying inflation. He noted that recent trends have seen companies actively adjusting prices and wages in response to currency movements, resulting in potential effects on domestic prices.

The current depreciation of the yen against the dollar, reaching a 10-month low, has intensified the pressure on Japanese policymakers to address further declines that could escalate living costs for households. In the past, yen movements have played a significant role in driving changes in BOJ policy, including last year’s decision to raise interest rates in July.

Considering the positive economic indicators and the sustained consumer inflation above the 2% target over the past three years, the BOJ’s decision to maintain the policy rate at 0.5% since January reflects a cautious approach. The central bank has raised rates twice since exiting its decade-long stimulus program, with the most recent adjustment in January.

Governor Ueda underscored the importance of closely monitoring wage negotiations in the upcoming year to assess if firms will continue to increase pay. The BOJ is currently gathering information from its branches nationwide to inform its decision-making process.

Looking ahead, the central bank will analyze various data and information to determine the feasibility and timing of an interest rate hike. As long as the economy progresses as anticipated, the BOJ is poised to implement rate hikes, with the expectation of achieving 2% underlying inflation between the latter half of fiscal 2026 and fiscal 2027.