The translated heading in English is: "Firm Approach: BOJ Signals Further Interest Rate Hikes

In a remarkable shift from his previous stance, Bank of Japan (BOJ) Governor Kazuo Ueda now emerges as a determined advocate of tight monetary policy. Despite a weakening economy, he remains undeterred and prepared to raise interest rates multiple times. This shift in Ueda's stance reflects the central bank's growing confidence that steady wage increases will stimulate consumption. However, there are also concerns that excessively low interest rates could weaken the yen and lead to painful, unpopular inflation. Recent calls from politicians, including Prime Minister Fumio Kishida, for a tighter policy to combat yen depreciation, also encourage the BOJ to signal future rate hikes, according to analysts. Ueda's recent statements and Japan's persistently low real interest rates suggest that the BOJ plans to raise interest rates to at least around 0.75%, regardless of economic shocks, sources and analysts say. "Ueda's remarks indicate that the BOJ will continue to raise interest rates unless the projection of economic expansion is derailed," said Yoshimasa Maruyama, chief market economist at SMBC Nikko Securities. In a press conference explaining the BOJ’s decision to raise short-term rates to 0.25%, Ueda stated that there is still “quite a bit of distance” to reach a neutral level. Ueda also emphasized that 0.5%—a level Japan has not reached since 2008—does not pose a barrier to even higher interest rates. Three sources familiar with BOJ's considerations noted that the dominant view within the central bank is that the neutral interest rate level lies in the range of 1-1.5%. This suggests at least two more 25 basis point increases to 0.75%. Such increments would reduce excessive monetary support without creating restrictive conditions, requiring only that inflation data roughly align with the BOJ’s projections. Only when short-term rates reach neutral levels will the BOJ's decision-making become sensitive to subtler signs of economic weakness, the sources say. One source added, "The March reversal was an extraordinary measure. After that, it’s business as usual." With the removal of negative rates and other elements of the massive stimulus program in March, the BOJ aimed to communicate in a way that would not shock markets with overly hawkish signals. After markets have digested the impacts of the March step, the BOJ now moves to send clearer signals about the potential for a fully-fledged rate hike cycle, the sources said. Underscoring the BOJ's hawkish stance, its quarterly outlook report on Wednesday stated that it will "continue to raise its policy rates" as long as the economy and inflation align with forecasts. This contrasts with previous language that promised to "keep financial conditions accommodative," even as the BOJ adjusted the level of monetary support. The BOJ's decision to raise rates on Wednesday came despite recent weaknesses in consumption, leading many economists to believe it would wait to gather more data. Two board members voted against the decision. Ueda reiterated the downsides of a weak yen, stating there is "a significant risk" that associated import costs could drive inflation higher than expected. JPMorgan now expects the BOJ to raise rates to 0.5% in December, followed by two more increases to 1% by the end of 2025. Takihade Kiuchi from Nomura Research Institute believes the BOJ aims to raise rates to near 1% by early next year. Former BOJ official Nobuyasu Atago from Rakuten Securities Economic Research Institute also sees the possibility of another rate hike in the next BOJ outlook report in October.