Bank of Japan Governor: Interest rates still below neutral level, opportunity for rate hikes if wage growth momentum does not weaken.

The Bank of Japan raised interest rates to the highest level in 30 years on Friday and hinted at further rate hikes, marking another milestone in ending decades of massive monetary support and near-zero borrowing costs. As widely expected, the Bank of Japan raised short-term rates from 0.5% to 0.75%, marking the first rate hike since January, with the decision passed unanimously. Bank of Japan Governor Haruhiko Kuroda later stated in a press conference that future decisions will be based on inflation and wage data, emphasizing that achieving inflation targets is crucial for future rate hikes. However, he also noted that policy adjustments will be gradual, with close attention to economic reactions. Key points from Kuroda's speech on Friday are as follows: Policy adjustments will depend on data The extent to which we adjust monetary support will depend on the economic, price, and financial situation at the time. We will update our views on economic and price prospects at each meeting, as well as the risks and the likelihood of achieving forecasts, and make appropriate decisions. Neutral interest rates are unclear, policy will depend on economic conditions Our estimate range for Japan's neutral interest rate is quite wide. It is difficult to give an exact estimate... We hope to observe the economic and price reactions to each change in short-term rates. Monetary support will consider real interest rates and lending conditions When assessing monetary support, we must not only pay attention to the difference between rates and neutral rates, but also to real rates, credit conditions, and economic developments. Rates are lower than the neutral level; the Bank of Japan will closely monitor economic conditions to adjust policy direction. Even with the interest rate hike to 0.75%, there is still a distance from the lower limit of our estimated neutral rate range. When assessing the position of the neutral rate, we need to observe the economic and price reactions to each policy adjustment. Bank of Japan officials say a weak yen may push up prices At today's meeting, several committee members mentioned that the recent depreciation of the yen may create upward pressure on prices and affect potential inflation. Estimating a new neutral interest rate may not narrow the range If necessary, we will attempt to estimate a new neutral interest rate for Japan, but I believe this will not have a significant impact on us narrowing the rate range. Strong wage growth momentum may open the door to rate hikes. The initial momentum in next year's wage negotiations seems good. If the momentum in wage negotiations does not weaken as expected, there may be opportunities for further rate hikes. Does the Bank of Japan's wage outlook hint at further rate hikes? Regarding the gap between the Bank of Japan's policy rate and the neutral rate, all I can say is that our future policy decisions will depend on the information available at the time. Even considering our estimates of the neutral interest rate, our policy rate is still slightly below the lower limit of the range. Looking back at the impact of past rate hikes, I see no evidence that these hikes significantly weakened monetary support. Our survey found that overall profits for small businesses are stable. The issue lies in differences between different businesses, especially among the smallest enterprises, and we hope to carefully observe developments. Assessing the impact of "Abenomics" We have been guiding monetary policy based on a joint statement with the government. We have not yet reached the final stage. Of course, there may have been some side effects already, and there may be more in the future. But our goal is a smooth landing. Real interest rates on 2-3 year Japanese government bonds significantly negative Even using various inflation expectations indicators, it is clear that the real interest rates on overnight to 2-year and 3-year Japanese government bonds are negative. The Bank of Japan believes that rate hikes will depend on economic data and seeks to achieve inflation targets The pace of future rate hikes will depend on economic data and developments at the time. We will make appropriate decisions to ensure that we are not lagging behind in terms of inflation, and are able to smoothly achieve our inflation target.