This comes as Bank of Japan Governor Kazuo Ueda has made his strongest indication yet that interest rate hikes could come as early as December, depending on the continuation of wage growth momentum into next year. The Bank of Japan held its policy rate at 0.5% in today’s meeting. Yet the strong hawkish tone in Ueda’s remarks indicates increasing confidence in the current economic situation. In contrast to expectations, the Japanese currency has depreciated sharply against the main world currencies.
Wage momentum appears as a more important policy factor
The BOJ’s rate deliberations are contingent to a large degree on whether Japanese firms will maintain their wage escalation patterns under increasing U.S. tariff pressure and economic uncertainty worldwide. Ueda has clearly stated that the authorities are waiting for more information before raising rates based on the initial wage bargaining trends in the forthcoming year. This strategy indicates the determination of the BOJ to promote sustainable inflation in reaching the 2% inflation goal through wage-induced demands rather than price shocks.
“I’m not suggesting we have to wait until we get the outcome of next year’s wage negotiations. We would like to get a little more information about the starting tone of the negotiations,” Ueda told reporters when asked about the prospects of policy change in December.
The governor’s remarks suggest that the required wage information might become available before the end of the year to warrant rate action. This appears to signal the BOJ might move faster than expected in the markets if the initial wage negotiation signals are positive.
Political pressures add to the problem of central bank independence
This has been made more complicated by the appointment of a new Prime Minister in Sanae Takaichi, and her calls for loose monetary policies. Ueda has ruled out the prospect that politics might come into play when the bank must adjust its rates.
Split board suggests increasingly hawkish tone at BOJ
This decision has revealed the divisions among the BOJ board members, as Naoki Tamura and Hajime Takata voted differently by calling for rates to rise to 0.75%. This represents the second straight meeting in which the aforementioned board members have been calling for more drastic measures. This indicates the growing discord among the board members for the normalization of the country’s policies.
Ueda made note of the fact that the “chance of realizing the baseline projection has heightened somewhat” when commenting on the prospects of the BOJ’s baseline economic projection. This subtle yet important change in language reflects the fact that the economic outlook appears to the Japanese central bankers to currently meet their expectations more closely. Such confidence would play a vital role in facilitating future interest rate hikes.
Economic resilience provides support for the normalization of policy
The Japanese economy has shown strong resilience against external challenges, as profits, business confidence, and capital expenditure plans remain strong despite the increase in U.S. tariffs. Stubbornly high food prices have pushed inflation above the BOJ’s 2% target for over three years, catching the attention of policymakers for broader inflationary pressures. Such an inflation scenario justifies a gradual policy normalization as the economy has favorable fundamentals.
Main economic variables:
- Current borrowing rate: 0.5%
- Inflation target: 2% (exceeded for 3+ years
- Proposed dissenter rate: 0.75
- Yen performance: 153.56 vs. USD (weakest since February)
- Economic growth: Upped 2026 fiscal-year forecast
The Bank of Japan currently faces a crossroads situation as wage acceleration figures are set to decide the sequence of its upcoming actions. An increasingly upbeat mood from Bank of Japan Governor Ueda indicates that the Bank has not ruled out rates in December if wage patterns show sustainability. Market sentiment has been inconsistent following the bank’s activities.
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