Bank of Japan deputy governor Uchida hints at further rate hikes

Bank of Japan Deputy Governor Shinichi Uchida indicated on Friday that the central bank is prepared to raise interest rates further if the economy and prices align with its forecasts. Uchida made this statement during a speech at the annual meeting of trust unions, representing Governor Kazuo Ueda.

"Japan's economy is recovering moderately, despite some weak signals," Uchida noted. He also highlighted that Japan's underlying inflation is expected to gradually move towards the BOJ's 2 per cent target, driven by rising wages and prices boosting inflation expectations.

Following the termination of an eight-year negative interest rate policy in March, the BOJ has expressed its intention to increase short-term rates beyond the current 0-0.1 per cent range. At last week's policy meeting, the central bank announced plans to outline a strategy in July to reduce its extensive bond-buying program over the next one to two years.

Uchida reiterated that the scale of the BOJ's bond tapering will be "significant," echoing comments from Governor Ueda at the recent post-meeting press conference. Market participants anticipate another rate hike from the BOJ this year, although opinions differ on whether it will occur as early as July or later.

Additionally, the central bank faces pressure to commence quantitative tightening (QT) and reduce its nearly $5 trillion balance sheet to ensure future rate hikes effectively impact the economy.

(With Reuters inputs)