BOJ must keep raising rates but focus on uncertainty: Official

Bank of Japan Deputy Governor Ryozo Himino said on Tuesday the central bank should keep raising interest rates but warned that global economic uncertainty remains high, suggesting it was in no rush to push up still-low borrowing costs.

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While Japan's trade deal with the US helps alleviate uncertainty over the economy, the exact impact of US tariffs remained unknown at this time, he said.

“At the moment, the risk of a larger-than-expected impact may deserve greater attention,” Himino said in a speech to business leaders in Kushiro, northern Japan. “Overall, the global economy still faces high levels of uncertainty.”

Himino also said there were both upside and downside risks to the inflation outlook. While Japan's tight labour market may push up wages, slowing global growth and the hit to Japan's economy from higher US levies could weigh on prices, he said.

“After temporarily stalling due to slowing growth from the impact of tariffs, we expect Japan's underlying inflation to eventually stabilise around levels consistent with our 2% target,” Himino said.

“If our baseline scenario is realised, it would be appropriate to continue raising interest rates in accordance with improvements in the economy and prices,” he said.

Himino offered few hints on how soon the central bank could raise interest rates, saying only that it needs to ensure rate increases are neither premature nor too late.

“If it becomes clear the impact of US tariffs (on Japan's economy) won't materialise much, that would work in favour of raising interest rates,” Himino told a news conference.