Bank of Japan's Kazuo Ueda keeps cards close to chest ahead of October meeting

Bank of Japan Governor Kazuo Ueda likely left Washington last week with little conviction that global headwinds will allow the central bank to raise interest rates as soon as this month, with finance officials from around the world warning of downside risks amid renewed U.S.-China trade tensions.

But the resilience of the global economy, which was touted by the International Monetary Fund in its latest World Economic Outlook last week, also gives him cover to proceed with a near-term rate hike if a hawkish-leaning BOJ board prefers to move sooner rather than later. Ueda, as a result, left his options open by offering few clues on the timing of a rate hike, which markets bet will happen by January of next year.

"There's not much of a gap in how I see global and U.S. economies now and how I saw it back in Japan," Ueda said in a press conference on Thursday after attending the G20 finance leaders' gathering in Washington. "I would like to keep gathering more information and scrutinize various data that comes out leading up to our October policy meeting," he said, when asked about the chance of a rate hike at the October 29-30 session.


Markets have been focusing on Ueda's comments in Washington, after he said earlier this month he hoped the talks with finance officials and bankers would provide information that helped BOJ policymakers decide whether to hike rates in late October.

Ueda has repeatedly cautioned against raising borrowing costs too soon, stressing the need to gauge the strength of the U.S. economy and the extent of the damage from President Donald Trump's tariffs on Japan's export-reliant economy. The meetings in Washington likely gave Ueda little clarity on how soon the fog shrouding the global outlook would clear.

PRESSURE WITHIN BOJ BOARD TO RAISE RATES QUICKER

The IMF last week lifted its 2025 global growth forecast but warned that a renewed U.S.-China trade war could slow output. While describing global growth as resilient, IMF member countries voiced concerns about emerging strains and risks to the outlook.

A senior IMF official told Reuters there were downside risks to Japan's economy and urged the BOJ to be "very gradual" in raising rates due to high uncertainty about the outlook.

While Ueda may have plenty of reasons to put rates on hold, he faces pressure from within his board to move quicker. With inflation above the BOJ's 2% target for three straight years and Japan's economy weathering the hit from U.S. tariffs so far, the central bank's board is gradually leaning toward resuming rate hikes that had been put on hold since it raised its key interest rate to 0.5% in January.

Two of the BOJ's nine board members unsuccessfully proposed raising rates in September on mounting inflationary pressure. Another dovish member then surprised markets by saying the need for a rate hike was increasing "more than ever."

Delaying rate hikes for too long could also trigger a renewed slide in the yen, which could further push up the cost of living by inflating import prices.

"If the BOJ holds off on raising rates in October, the next chance would be in December," said Tomoyuki Shimoda, a former BOJ executive. "During that time, there's a risk the yen could slide further."

Still, the overall tone of Ueda and his staff suggests the BOJ will take a go-slow approach partly because hiking its key rate to 0.75% would bring it to levels unseen in three decades. Japan's parliament will likely vote to choose a new prime minister on Tuesday, giving the BOJ little time to communicate with a new administration before its next policy meeting.

The expected new prime minister, Sanae Takaichi, is a proponent of loose monetary policy. "We don't know how exactly the economy will react" to rate hikes, BOJ Assistant Governor Seiichi Shimizu said during a seminar in Washington on Thursday.

"This is another type of uncertainty we are facing now" that warrants moving cautiously, he said. (Reporting by Leika Kihara; Editing by Paul Simao)