FX.co ★ BoJ May Hike Rates if Food Inflation Spreads: Governor Ueda

In a recent address to a parliamentary committee, Governor Kazuo Ueda of the Bank of Japan (BoJ) indicated that the institution might consider tightening its monetary policy if there is a significant rise in food prices leading to broad-based inflation. He highlighted that an increase in certain food prices could extend to processed foods and restaurant prices, facilitating price hikes across various sectors. This potential ripple effect could sustain inflationary pressures, possibly justifying an interest rate increase. Nevertheless, Ueda stressed that the central bank should not respond to temporary food price inflation. For nearly three years, consumer inflation has exceeded the BoJ's 2% target. Despite ongoing inflationary pressures, the BoJ maintained its policy rate at 0.5% last week as it evaluates the consequences of the interest rate hike implemented in January. Ueda also expressed heightened concern about economic uncertainties, such as possible risks stemming from U.S. trade policy, which may impact Japan's economic outlook.