Bank of Japan Governor Kazuo Ueda said the economy was making progress in achieving sustained wages-driven inflation, but gave few clues on whether the central bank could raise interest rates again next month.
Ueda repeated the BOJ's readiness to keep increasing borrowing costs if the economy behaves in line with its forecast, and signalled that domestic conditions for another rate hike was falling into place.
But he warned of the need to scrutinise external risks such as uncertainty over the U.S. outlook and still-jittery financial markets.
"The timing for when we'll adjust the degree of our monetary support will depend on the economic, price and financial outlook," the governor said in a speech on Monday.
The lack of clear guidance nudged up the dollar by 0.4% to 154.77 yen as some traders unwound bets that Ueda could drop hints of a December rate hike.
Markets imply around a 55% chance of a quarter-point rate hike to 0.5% when the BOJ meets on Dec. 19, largely unchanged from before the BOJ chief's remarks.
The BOJ ended negative interest rates in March and raised its short-term policy rate to 0.25% in July on the view Japan was on the cusp of durably achieving its 2% inflation target.
Ueda cited rising inflationary pressure from a weak yen, which boosts import costs, as among factors that led to the July rate hike. That has led many market players to wager that yen moves will be key to how soon the BOJ will next raise rates.
BOJ HAS 'FREE HAND'
Monday's comments were Ueda's first remarks on monetary policy since Donald Trump's victory in the U.S. presidential election on Nov. 5.
When asked about Trump's return to the White House, Ueda said it would take a long time before there is clarity on his economic policies.
"If one were to assume the BOJ will lay the groundwork before raising rates, the chance of a December hike declined," said Toru Suehiro, chief economist at Daiwa Securities.
"But you could also say the BOJ simply left itself a free hand, as the bias of Ueda's remarks was toward more hikes."
Ueda said rising wages and robust profits were pushing up consumption and capital expenditure, voicing confidence that domestic conditions were ripe for a near-term rate hike.
Companies were raising prices not just for goods but services in October, a month when they typically review prices, in a sign inflation was being driven more by domestic demand and higher wages, than rising raw material costs, Ueda said.
"A positive cycle, in which rising income leads to higher spending, is gradually strengthening for both companies and households," Ueda told business leaders in the central Japan city of Nagoya.
"We expect wage-driven inflationary pressure to heighten, as the economy continues to improve and companies keep hiking pay," he said, adding the focus for the BOJ's monetary policy would be on whether wage and price growth will continue to accelerate.
Another consideration, he said, was whether global growth will expand gradually and underpin Japan's export-reliant economy.
"The chance of the U.S. economy achieving a soft-landing scenario appears to be increasing," Ueda said, adding that market sentiment was improving due to receding concern over the U.S. outlook.
However, the central bank must remain vigilant to external risks, he said, given the chance of renewed market volatility from geo-political risks.
