Headline: BOJ/Ueda: The Challenge of Gauging the Appropriate Scale of Future Rate Hikes

Bank of Japan Governor Kazuo Ueda stated on Wednesday that achieving the 2% inflation target sustainably "still takes time," indicating that the central bank would proceed cautiously in raising the country's near-zero interest rates. Ueda highlighted the uncertainty about a level of interest rates that neither curbs nor stimulates the economy, making it challenging to decide the extent of future increases in borrowing costs. He noted a broad estimate range for the "neutral rate," which complicates predicting how much rates will rise. "Determining the appropriate magnitude of rate hikes from here is very difficult," Ueda said.

Ueda also warned of the cost of moving too slowly in raising interest rates, suggesting that it could give speculators an excuse to trigger an unwanted depreciation of the yen, which would increase import costs. Speaking at a panel organized by the IMF, Ueda said, "When there is significant uncertainty, you usually want to proceed cautiously and gradually. However, the problem here is that if you proceed very, very gradually and create expectations that rates will stay low for too long, it can lead to an accumulation of large speculative positions that could become problematic."