(Reuters) -The Bank of Japan raised interest rates on Friday to their highest since the 2008 global financial crisis and revised up its inflation forecasts, underscoring its confidence that rising wages will keep inflation stable around its 2% target.
At its two-day meeting concluding on Friday, the BOJ raised its short-term policy rate from 0.25% to 0.5% - a level Japan has not seen in 17 years. It was made in an 8-1 vote with board member Toyoaki Nakamura dissenting.
Following are excerpts from BOJ Governor Kazuo Ueda's comments at his post-meeting news conference, which was conducted in Japanese, as translated by Reuters:
WAGE HIKE
"Many firms are saying they will continue to raise wages ... Various data shows the U.S. economy is in firm shape. Markets have been stable as the broad direction of Trump's policies become clearer. While import price growth is subdued on a year-on-year basis, the weak yen is pushing up import costs."
POLICY RATE
"There's no change to our view of raising our policy rate and adjusting the degree of monetary support if the economy and prices move in line with our forecasts."
"The timing and pace of adjusting monetary support will depend on economic and price developments at the time. We don't have any preset idea. We will make a decision at each policy meeting by looking at economic and price developments as well as risks."
SHARP UPGRADE IN INFLATION FORECASTS
"The rise in underlying inflation is moderate. I don't think we are seriously behind the curve in dealing with inflation."
IMPACT OF TRUMP'S TARIFF POLICIES
"There's very high uncertainty on the scale of tariffs. Once there is more clarity, we will take that into our forecasts and reflect them in deciding policy."
"It's necessary to raise interest rates in accordance with developments in the economy and prices. We also need to see how our rate hikes affect the economy. It's therefore appropriate to gradually raise interest rates in several stages, while carefully examining the impact of our moves."
TERMINAL RATE
"There's no change to our view on the neutral rate, which in our estimate is spread in a wide band. The estimated band hasn't changed much. In terms of the distance to the neutral rate, it's true it has shortened after raising rates to 0.5%. But there's still quite some distance."
"The BOJ's estimate shows the neutral rate, in nominal terms, is in a range of 1%-2.5%. There's still some distance to that range, given the short-term rate is 0.5%. Of course, we need to deepen analyses on where the neutral rate is as this could be affected by demographics and structural changes in the economy. We'll try our best. But it's hard to know this real time."
ON WHETHER JAPAN IS STILL IN DEFLATION
"The government has a slightly different definition of deflation compared with ours, as we focus on sustainably achieving our 2% inflation target... In terms of the common definition of deflation, which is for an economy to avert falling prices, it seems like Japan has moved away from this quite a bit. Of course, the risk of Japan returning to deflation again in the long run is not zero. But the chance seems quite low."
"The sharp rise in inflation during fiscal 2025 is mostly due to cost-push pressures expected in the first half of that year, which is likely to dissipate in the latter half. As such, if wages rise steadily, we can expect real wages to turn positive."
DOWNGRADE IN POTENTIAL GROWTH ESTIMATE
"Simply put, it's because of labour shortages... The downgrade is small and so the impact, if any, on our neutral rate estimate will be minimal."
ON WHETHER THE BOJ SEES 0.75% AS A BARRIER IN RAISING RATES
"We don't have any sense of a 'barrier' in mind. But when rates approach neutral or slightly exceed that level, there will be some kind of reaction to the economy such as declines in housing investment. We'll try to respond before the impact becomes very large. But we will be gradually testing the waters in finding out."