The Bank of Japan (BOJ) yesterday kept interest rates steady, but warned for the first time that underlying inflation could exceed its target, signaling further rate hikes in the wake of the Japanese government’s yen-buying intervention.The central bank also highlighted inflationary pressures from robust global artificial intelligence (AI) demand and said that concern over the economic hit from the Middle East conflict was receding, underscoring its focus on inflation risks that could warrant higher rates.“There is a risk underlying inflation could deviate above our 2 percent target as medium and long-term inflation expectations continue to rise, and firms become more active toward raising prices and wages,” the Bank of Japan said in a quarterly outlook report. “We must pay due attention to keep such a risk from materializing and exerting an adverse impact on the economy.”
Bank of Japan Governor Kazuo Ueda speaks at a news conference at the central bank’s headquarters in Tokyo yesterday.
That language was stronger than that used in the previous outlook report released in April, in which the bank said that underlying inflation was approaching 2 percent and required it to be vigilant to upside price risks.“Given that underlying inflation is approaching our 2 percent target, we must scrutinize upside price risks more than ever,” Bank of Japan Governor Kazuo Ueda told a news conference. “We will debate our policy from our next meeting onward with this point in mind.”
