BOJ chief warns of risks of raising interest rates too slowly

Bank of Japan Governor Kazuo Ueda on Wednesday warned of the risks of moving too slowly in raising interest rates, saying striking the right balance is crucial for the Japanese economy to grow in a sustainable way.

"Uncertainties are everywhere, any time...when there's huge uncertainty, you usually want to proceed cautiously and gradually," Ueda said at an event in Washington, held on the sidelines of the International Monetary Fund and the World Bank's autumn meetings.

But he said it would be problematic "if you proceed very, very gradually" and trigger expectations that interest rates will stay at low levels for a long period.

"This could lead to a buildup of huge speculative positions, which could become a problem later," he said. "We need to strike a balance between the two."

He also said it is "still taking time" for Japan to achieve the BOJ's inflation target in a sustainable manner.

His remarks came after the U.S. dollar hit a three-month high against the Japanese currency, briefly entering the 153 yen range.

The yen's continued weakness, which has increased import costs, reflects expectations that the interest rate gap between the United States and Japan will not narrow significantly anytime soon.

Asked what keeps him awake at night, given that the Japanese economy is at a delicate juncture, Ueda, the first academic economist to lead the BOJ in postwar Japan, said thinking about "what would be the right size of normalization in total going forward and how best to allocate that total rate hikes across time."

While suggesting the need for more rate hikes, he said, "It's very hard to pin down the appropriate size" from hereafter, partly because of uncertain external factors, including the difficulty in predicting the course of the U.S. economy.

On the yen's depreciation, Japanese Finance Minister Katsunobu Kato told reporters later Wednesday that he has been seeing "one-sided, rapid moves" lately.

Speaking after participating in the first day of a two-day meeting of Group of 20 finance chiefs, Kato said he will "increase my sense of urgency" and closely monitor developments in the currency market.