By Leika Kihara and Yoshifumi Takemoto

TOKYO (Reuters) –

Bank of Japan Governor Kazuo Ueda expressed on Monday that the central bank will raise interest rates further if the economy continues to improve. However, he emphasized the importance of considering various risks before making such decisions.

Ueda previously noted uncertainty surrounding U.S. President-elect Donald Trump’s economic policies and Japan’s domestic wage outlook, which contributed to delaying any rate hikes.

The Bank of Japan (BOJ) has reiterated that sustained, broad-based wage increases are essential for increasing borrowing costs. Prime Minister Shigeru Ishiba mentioned on Monday a commitment to enhance Japan’s minimum wage and boost consumption.

> “During Japan’s period of deflation, companies boosted dividends and overseas investment. However, domestic investment and consumption have struggled. We’re finally observing some positive changes,” said Ishiba in a news conference.

Ueda expressed hope that the momentum towards permanently achieving the BOJ’s 2% inflation target would persist into 2025. He stated, “If economic and price conditions continue to improve, the BOJ will adjust its policy rates accordingly,” during remarks at a New Year’s event hosted by a banking sector lobby.

Ueda also highlighted that the timing for altering monetary support will depend on future economic, financial, and price developments, urging vigilance to various risks.

After concluding extensive monetary stimulus and raising rates to 0.25% last year, the BOJ has kept investors uncertain about the timing of future hikes. Some speculate on the bank’s Jan. 23-24 meeting, while others believe March or later is more likely.

On Monday, the benchmark 10-year Japanese government bond yield climbed 3.5 basis points to 1.125%, the highest in 13.5 years, partly due to growing expectations for a near-term rate increase. This depends largely on whether Japanese companies will maintain significant wage hikes in light of slowing global demand and threats of higher tariffs from Trump.

Many large firms typically finalize their annual wage negotiations around March, yet Ueda has indicated that the BOJ does not necessarily need to wait until then to act.

The central bank will release its quarterly report on regional Japanese economies on Thursday, which could shed light on its stance regarding wage increases. Furthermore, Deputy Governor Ryozo Himino may signal the timing of a rate hike during a speech and news conference on Jan. 14.