Bank of Japan's Uchida Shinichi: Future interest rate hikes will closely monitor the situation in the Middle East, suspending bond purchases to leave "replacement space" for domestic funds.

After raising the policy interest rate to a 31-year high on Tuesday, Bank of Japan Deputy Governor Shinichi Uchida explained in detail on various issues such as inflation prospects, wage-price spiral, the impact of a weak yen, and the future policy path at a press conference after the meeting, and revealed that the central bank has decided to pause the reduction of bond purchases to allow domestic investors to fill the market space. With a vote of 7-1 on Tuesday, the Bank of Japan raised the policy interest rate by 25 basis points to 1%, the first time reaching this level since 1995. This was the first rate hike since December last year when it was raised to 0.75%, signaling a significant acceleration in the normalization process of the Bank of Japan's policy against the backdrop of energy shocks caused by the Iran war and continued pressure on the yen. The only dissenting member of the board was Toichiro Asada, who advocated keeping the interest rate unchanged. Below is a summary of Shinichi Uchida's remarks at the press conference after the meeting: Regarding the outlook for oil supply, Shinichi Uchida stated at the press conference, "Since the meeting in April, the US and Iran have signed a memorandum, which is a welcome development, but there is still uncertainty about the speed of improvement in the oil circulation process." He also added that it is difficult to assert the impact of the US-Iran agreement on Japan's achievement of the price target timeline. "We did not adjust our basic forecast for achieving the target today. There are factors that could bring the target forward, as well as factors that could cause delays. How the easing of the situation in the Middle East will affect Japan's inflation outlook will be a key variable in determining the future monetary policy direction." Regarding inflation, Shinichi Uchida emphasized that the risk of a sharp deterioration in the economy has diminished, but the range of price increases is expanding, and the risk of core inflation deviating from the central bank's target cannot be ignored. He bluntly stated, "Core inflation is approaching 2%, and it is crucial to ensure stable achievement of the target." According to the latest data, Japan's producer price index soared by 6.3% year-on-year in May, the fastest pace in over three years, driven mainly by energy costs, and price transmission between companies is proceeding at a faster pace. Although the consumer price index has been lowered to below 2% due to government measures such as cancelling gasoline taxes and making high school tuition free, analysts believe this is only a temporary phenomenon under policy suppression.