Bank of Japan Governor Kazuo Ueda stated that the central bank will continue its tightening policy if confidence in achieving economic forecasts improves, implying a potential for interest rate hikes in the near term. Ueda remarked, “Our position remains unchanged; even if our confidence in achieving target goals strengthens, we will adjust the degree of monetary easing.” Since last year, the Bank of Japan has gradually reduced monetary stimulus through interest rate hikes and adjustments to its balance sheet policy.

However, Ueda indicated that he might wait until the last moment of the next policy committee meeting to make a decision. He mentioned plans to continue gathering information during ongoing international meetings and to evaluate the received data before making a decision during the monetary policy meeting scheduled for October 29-30.

Financial markets currently expect a low likelihood of a rate hike by the Bank of Japan at the end of this month. Yet, Ueda reaffirmed the Bank's existing stance, indicating that the central bank has not ruled out the possibility of taking action in the short term, even amid domestic political turmoil and escalating trade tensions.

Ueda's comments mark his first statement since the unexpected election of Sanae Takaichi as the ruling Liberal Democratic Party leader earlier this month. Takaichi is known for her criticism of the Bank of Japan's tightening policy, and her rise to power has caused market unease, significantly lowering expectations for a short-term rate hike.

According to overnight swap trading data, traders currently estimate a roughly 17% chance of action by the Bank of Japan this month—down from a high of 68% just weeks ago, when two central bank members called for tightening measures and a dovish member made hawkish comments.

Political uncertainty complicates the situation further. The long-time coalition partner of the Liberal Democratic Party, Komeito, withdrew from the governing coalition last week, diminishing Takaichi's hopes of becoming Japan's first female Prime Minister. Currently, she is seeking support from the Japan Innovation Party based in Osaka, while other opposition parties are exploring ways to unite against the Liberal Democrats.

Despite a broader unstable situation that dims the prospects for policy normalization in the short term, the yen's persistent weakness may pressure the Bank of Japan to take action before inflation worsens. When asked about the impact of domestic political instability on policy-making, Ueda did not provide a specific response.

Earlier this month, Ueda highlighted that the global economy, especially the U.S. economy, and its effects on Japanese corporate profits are key areas to monitor. On Thursday, Ueda stated that G20 member countries view the global economy as generally resilient but still facing high uncertainty and complex challenges—especially in geopolitical and trade tensions. He noted that financial leaders see these issues as potential factors that could drag down economic growth and pose risks to financial and price stability.

Ueda also mentioned that the effects of tariffs are manifesting slowly and may only become evident in the coming months. He said, “Many institutions and observers are still incorporating tariff factors into their forecasts or considering them as potential risks when assessing the global and U.S. economies.”