The governor of Japan’s central bank, Kazuo Ueda, stirred speculations about a potential rate hike on Monday by suggesting in a speech to business leaders that economic conditions are favorable for continuing monetary policy normalization, which the institution paused in January to assess the impact of new U.S. tariffs.
Without predicting the outcome of the upcoming BoJ monetary policy meeting later this month, Ueda stated that “adjusting the level of monetary easing in a timely manner, neither too late nor too early, is necessary to smoothly achieve the price stability target while ensuring the stability of financial and capital markets.”
His remarks led to significant declines on the Tokyo Stock Exchange, and the country’s debt securities, which had already been reaching highs since the 2008 financial crisis due to concerns over the archipelago’s fiscal health, surged.
This followed the announcement by the new Japanese Cabinet of Prime Minister Sanae Takaichi last Thursday, regarding the proposed supplementary budget for 2025, valued at 18.3 trillion yen (over 100 billion euros), which will be largely financed by issuing government bonds and is mainly intended for an ambitious stimulus package.
The BoJ is by far the largest investor in the debt of the country with the highest debt level among advanced economies, whose yields are an essential barometer of long-term rates.
The central bank has maintained the benchmark interest rates at 0.5% for the last six monetary policy meetings, following a 25 basis points increase in January.
The year’s final meeting generated much anticipation after the government change in Japan in October, but the BoJ remained cautious, awaiting the financial stance of the new prime minister, who has been critical of rate hikes, and also seeking a stabilized view of tariff negotiations with the United States, Japan’s second-largest trading partner after China.
