Bank of Japan Governor Kazuo Ueda said the central bank will continue to raise interest rates as underlying inflation approaches 2% and financial conditions in Japan remain accommodative, reiterating the bank's stance at this week's International Monetary Fund meetings, a forum that brings together central bankers and finance officials from around the world.

"As we have said, our policy has entered a new phase as underlying inflation is quite close to 2%. We cannot allow inflation to rise further," Ueda said. "As underlying inflation is quite close to 2%, it is becoming more important than before to anchor inflation around our target."

With underlying inflation now quite close to the 2% target — the level the BOJ defines as price stability — he indicated that keeping price growth anchored around that goal has taken on greater importance than before.

The BOJ's policy rate currently stands at 1.25%. Market pricing implies little chance of another hike at the October 30 meeting, though the perceived probability rises to 75% for the December 18 meeting.

Ueda said the timing and pace of any future rate hikes will be decided by looking at the impact of foreign exchange moves, AI demand and developments in the Middle East on prices, rather than on a pre-set course — an approach that keeps currency swings in focus given their pass-through to import costs. He added that the BOJ will discuss at its upcoming meeting whether to tweak its current assessment that underlying inflation is approaching 2%.

On the economic outlook, the governor struck a steady tone, saying economic and price developments remain roughly in line with the BOJ's forecasts. He said he did not hear anything at this week's meetings that deviated from the bank's baseline view.

Ueda described the main takeaway from the gatherings as an exchange of views with other policymakers on how the Middle East conflict and AI demand could affect the global and Japanese economies, as well as inflation. He said he felt that more policymakers at the meetings were somewhat more bullish on AI demand than the BOJ had estimated, while noting there was no big gap between the bank's own assessment of inflationary pressure from AI demand and what he heard from global counterparts.

On Japan's neutral rate of interest — the theoretical level at which policy neither stimulates nor restrains the economy — Ueda said it remains difficult to offer a clear estimate of its level. He explained that the BOJ wants to gauge its estimate of the neutral rate by taking into account the cumulative impact of past rate hikes on financial conditions and on domestic prices.

Separately, Ueda said he exchanged views with Federal Reserve Chair Warsh during the meetings but declined to comment on what was discussed. On US-Japan communication, he confirmed he has not been in touch with US Treasury Secretary Bessent since the two met in Asheville — a point of note on the currency intervention front, an area where Japan has previously stepped into markets to counter sharp yen declines.

USD/JPY was little changed on the day at 158.00, while the US dollar traded broadly weaker against other major currencies.