Bank of Japan Eyes Steady Rate Increases to Secure Sustainable Growth

Bank of Japan Governor Kazuo Ueda said on Monday that the central bank will persist with interest-rate increases if economic activity and inflation evolve broadly in line with its projections. Speaking to a gathering of banking industry representatives, Ueda noted that Japan’s economy maintained a modest recovery last year, even as higher U.S. tariffs weighed on corporate earnings.

Ueda expressed confidence that wages and prices are likely to continue rising together at a moderate pace, arguing that a gradual recalibration of monetary accommodation would support the economy’s transition toward sustainable growth. The central bank last month lifted its policy rate to 0.75% from 0.5%, the highest level in three decades, marking another significant step away from years of ultra-loose monetary policy and near-zero interest rates.

Despite the increase, real borrowing costs in Japan remain firmly negative, as consumer inflation has stayed above the Bank of Japan’s 2% target for almost four years. Investor attention is now turning to the BOJ’s quarterly outlook report, scheduled for release following its policy meeting on January 22–23, for signals on how policymakers assess inflationary pressures stemming from the yen’s recent depreciation.

The weaker currency has driven up import prices and contributed to broader inflation, leading some board members to advocate a continued, measured pace of rate hikes. In currency markets, the dollar strengthened slightly against the yen on Monday, while expectations of further tightening pushed government bond yields higher, with the 10-year benchmark briefly reaching its highest level in 27 years.

Addressing the same audience, Finance Minister Satsuki Katayama said Japan had reached a pivotal moment in its effort to shift from a deflation-prone environment toward a growth-led economic model.