According to the Zhito Finance APP, Governor Kazuo Ueda of the Bank of Japan stated on Wednesday that he expects the Japanese economy to be closer to sustainably achieving the central bank's 2% inflation target next year, implying that the timing of the next interest rate hike is approaching. However, he warned that it is necessary to carefully study the effects of the "high uncertainty" surrounding the overseas economy, particularly the economic policies of the upcoming administration of elected U.S. President Donald Trump.

Ueda emphasized that the prospect of wage negotiations between Japanese companies and labor unions next year is also crucial when explaining the factors that the Bank of Japan will carefully consider in formulating its policies.

"The timing and pace of adjusting the level of monetary easing will depend on the developments in economic activity, prices, and future financial conditions," Ueda stated during a speech to the Japan Business Federation (Keidanren).

These remarks underscore the Bank of Japan's determination to continue raising the current short-term interest rate of 0.25% next year. Most Analysts expect that the Bank of Japan will raise the interest rate to 0.5% in January or March next year.

The Bank of Japan ended its negative interest rate policy in March and raised its short-term policy target to 0.25% in July. It has signaled that it is ready to hike rates again if wages and prices move as expected.

Ueda stated that as labor shortages escalate and push up wages, consumption has shown signs of improvement. He emphasized that after years of aggressive monetary stimulus, the Bank of Japan has made progress in sustainably achieving its price targets.

Ueda Kazuo said that during the current transition phase to achieve a sustainable 2% inflation rate, the Bank of Japan will support the economy by keeping the policy interest rate at a level lower than the neutral level for the economy.

However, he mentioned that if the economy continues to improve, the Bank of Japan will raise interest rates, as maintaining excessive monetary support for too long could exacerbate inflation risks.

"Our forecast is that the virtuous cycle will strengthen further, and the Japanese economy will be closer to sustainably stable 2% inflation, while wages will also rise," Ueda Kazuo said while discussing the outlook for 2025.

"Recently, there has been a moderate rise in the prices of a range of commodities and services, reflecting the increase in wages. Against this backdrop, we believe that achieving the 2% inflation target sustainably and stably is just around the corner."

Prior to this, Ueda Kazuo stated last week that more information regarding Trump's policy stance and domestic wage developments is needed before raising borrowing costs again. The remarks made during the press conference after the Bank of Japan maintained interest rates were interpreted by investors as dovish, leading to the yen falling to its lowest level since July and prompting warnings from Japanese authorities.

Ueda Kazuo stated on Wednesday that wage increases in Japan must align with the 2% inflation rate, and that the high profits gained by large enterprises must be allocated to small businesses and households for the economy to sustainably reach the Bank of Japan's inflation target.

"We will utilize our branch network to study how wage increases in small and medium-sized enterprises will evolve," Ueda Kazuo said.

The Bank of Japan will release a quarterly report on regional economic conditions on January 9, which may include views on whether wage increases are spreading nationwide.