Bank of Japan Ponders Interest Rate Hike Amid Fading U.S. Risks

The Bank of Japan maintained ultra-low rates while noting subsiding U.S. economic risks, signaling potential rate hikes if moderate recovery continues. Governor Ueda indicated a possible December hike. Despite political uncertainties, underlying inflation is expected to stabilize around 2% by late 2025.

The Bank of Japan (BOJ) opted to keep its benchmark interest rates at ultra-low levels on Thursday. However, in a subtle shift in tone, the central bank indicated that diminishing risks surrounding the U.S. economy could pave the way for potential rate increases in the future.

Governor Kazuo Ueda remarked on favorable domestic economic indicators such as wage and price trends aligning with forecasts, while observing reduced uncertainties abroad. His comments sparked market speculation about a possible rate hike by December, causing the yen to strengthen against the dollar briefly.

Political dynamics following an inconclusive general election are expected to complicate the BOJ's path toward normalizing rates, although robust U.S. data assuaged some market fears. The central bank anticipates meeting its 2% inflation target by late 2025, contingent on economic conditions.

(With inputs from agencies.)