(Oct 16): Bank of Japan (BOJ) governor Kazuo Ueda said he “can’t tolerate” underlying inflation rising further above 2%.

“Going forward, underlying inflation is already roughly around 2%, and we cannot tolerate it rising any further,” Ueda told reporters on Friday when asked if prices nearing the bank’s target will have any impact on policy management. 

“The policy phase has recently shifted towards making sure inflation settles at around 2% as a key objective,” he said.

Ueda spoke after attending a series of international meetings of financial chiefs and central bankers in Bangkok. 

Ueda’s comments come as investors closely scrutinize the BOJ’s trajectory, following its September rate hike. His remarks signalled greater caution over inflation — suggesting the need for the bank to raise borrowing costs at a pace that would keep it from falling behind the curve.

Earlier this week, Bloomberg reported that BOJ officials are leaning against raising rates for a second consecutive meeting later this month, while keeping open the possibility of another move as soon as December, citing people familiar with the matter. Price developments have been broadly in line with the BOJ’s projections, with underlying inflation expected to reach a level consistent with its 2% target sometime in the next 18 months, the people said.

In September, the BOJ raised rates for the second time in three months, marking its fastest pace of monetary tightening since 1990.

Ueda said that his discussions with international counterparts hadn’t yielded much significant information that contradicted the BOJ’s current assessment. He added that he would discuss with fellow board members at the October meeting whether to tweak the bank’s current language describing underlying inflation as nearing its 2% target.

On Thursday, BOJ board member Junko Koeda warned against too much caution over raising interest rates, also hinting at another rate hike in coming months. 

Overnight swaps have suggested that traders are pricing in less than 5% probability of a hike this month, with the chances rising to about 75% for a move by December.

About a third of economists polled last month forecast a move in December, with more than half predicting the BOJ would wait until January.

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