Photo/Illutration Bank of Japan Governor Kazuo Ueda responds in an interview with The Asahi Shimbun on April 3. (Yuki Shibata)

Bank of Japan Governor Kazuo Ueda said greater certainty about achieving the inflation rate target of 2 percent would be needed before any decision is made on raising interest rates. 

“The possibility of achieving the BOJ's long-awaited target will further increase as wage hikes (from the recently completed "shunto" spring labor offensive) are reflected in higher consumer prices from summer through autumn,” Ueda said in an exclusive interview with The Asahi Shimbun on April 3.

In March, the BOJ changed course after about 11 years of an ultra-loose monetary policy and ended its negative interest rate policy that had been implemented under Ueda’s predecessor, Haruhiko Kuroda.

The central bank based that decision on the greater likelihood of a virtuous cycle between wages and prices.

That meant the first “increase” in short-term policy interest rates in 17 years. However, because that policy meant negative interest rates, the hike only brought the interest rate back to about zero.

Market insiders are already focusing on when the BOJ will make its first actual interest rate hike.

In the interview, Ueda pointed out that an underlying inflation rate of 2 percent had not yet been achieved because the higher costs of imports continued to be tacked on to product prices.

But he added that the reversal in monetary policy was made because “the degree of certainty” in achieving the inflation rate target “had exceeded a certain level.”

Regarding that degree of certainty, Ueda said the ending of the negative interest rate policy was decided because “that certainty had, for example, reached 75 percent. If that should rise to 80 percent or 85 percent, that would become one reason for moving the interest rate.”

The wage hikes agreed to by major companies in this year’s shunto were at the highest level in 33 years.

Ueda said he expected that to lead to higher consumer prices.

Regarding personal consumption, Ueda said it would likely be boosted by both the scheduled income tax cut the government is planning for June as well as higher wages and a decline in the rate at which consumer prices rise.

If that assessment turns out to be accurate, there is the possibility the BOJ could move toward a higher interest rate between summer to autumn.

At the same time, Ueda also said “there will be a need for a loose monetary environment as long as the assessment of the underlying inflation rate was under 2 percent.”

He also said if an excessively weak yen affected the overall economy and consumer prices, that might become another factor influencing any decision on raising interest rates.

The yen has recently been trading at 151 yen to the dollar, its weakest level in about 34 years.

Ueda said he would refrain from commenting on the present exchange rate, but added, “If exchange rate trends have an effect on the cycle between wages and prices that cannot be ignored, that would become a reason for responding to the situation through monetary policy.”

Ueda said if the inflation rate remained above 2 percent, that would become a factor for raising interest rates. However, he added the possibility of that occurring was not great.

He also clearly stated that the BOJ had no intention of reviewing the joint statement it made with the central government in January 2013 of seeking to achieve a 2-percent inflation rate in a stable and sustainable manner. 

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