Bank of Japan Governor Kazuo Ueda reiterated the policy of continuing to raise the benchmark interest rate in 2026. This move, supported by the momentum of Japan's economic recovery and rising wages and prices, underscores the bank's commitment to steadily normalizing monetary policy.
On the 5th, at the National Banks Association's New Year reception in Tokyo, President Ueda mentioned that "the trend of moderate increases in wages and prices is likely to continue." He stated that if this economic outlook materializes, the Bank of Japan will implement further interest rate hikes while gradually adjusting its current loose monetary policy.
Governor Ueda explained the background of adjusting the benchmark interest rate as "aiming to achieve the goal of price stability while guiding it towards sustainable economic growth." This indicates that the Bank of Japan's policy operations are not limited to simply managing the inflation rate, but also take into account the recovery of long-term economic fundamentals. In particular, given Japan's long-term struggle with deflation, the establishment of a structure where price increases and wage growth occur simultaneously is one of the core policy objectives.
Regarding last year's economic situation, President Ueda commented, "Despite the burden that U.S. foreign trade policies placed on Japanese companies, the economy maintained a moderate recovery momentum," adding, "This was a year that demonstrated the resilience and stability of the Japanese economy." This implies that domestic demand and employment in Japan remained strong, and market acceptance of interest rate hikes was to some extent guaranteed.
In fact, the Bank of Japan raised the benchmark interest rate by 0.25 percentage points to 0.75% from the previous level of 0.5% at its monetary policy meeting on December 19 last year (2025). This is the highest level in about 30 years since 1995 and is regarded as the first step in gradually moving out of the zero interest rate era and towards formal interest rate normalization.
This trend is expected to continue throughout the year. Financial market observers believe that the Bank of Japan will continue to closely monitor whether the trend of simultaneous price and wage increases persists and will flexibly adjust interest rates. Once Japan's monetary policy normalization is fully implemented, the possibility of it exerting gradual upward pressure on interest rates across the Asian financial markets cannot be ruled out.
