Bank of Japan Governor Kazuo Ueda said Tuesday further rate hikes will depend on how the economic and price situations develop, but that aggressive hikes will be unlikely given the current environment.

Speaking at a press conference after the BOJ decided to end its negative interest rate policy with its first increase in 17 years, Ueda said the decision to depart from unorthodox monetary policy reflects the BOJ's growing confidence about the prospect of the 2 percent inflation target being achieved stably and sustainably.

"Our main policy tool will shift to short-term interest rates," Ueda told the press conference.

Ueda said pay increases in this year's "shunto" wage negotiations between management and unions were a "big factor" behind the policy change.

Bank of Japan governor Kazuo Ueda holds a press conference in Tokyo on March 19, 2024, after the central bank decided to end its long-running negative interest rate policy, raising its key short-term interest rates for the first time in 17 years at a two-day policy-setting meeting. (Kyodo) ==Kyodo

Major companies such as Toyota Motor Corp. and Nissan Motor Co. said recently they had decided to offer their largest pay hikes in decades during the talks.

The governor said smaller firms are likely to follow suit, adding that the broadening of price hikes in the services sector, a proactive stance on investment among Japanese firms, and an improvement in consumer sentiment were also factored into the decision.

The BOJ also scrapped its program to keep long-term Japanese government bonds yields depressed at rock-bottom levels.

Ueda said long-term yields should be determined by market forces but the central bank will try to prevent a spike by buying bonds when needed.

"Unprecedented monetary easing is now over," the BOJ chief said, though he added that its balance sheet expanded by its past purchases of government bonds and exchange-traded funds over the past years will remain as a "legacy."

His predecessor Haruhiko Kuroda implemented a slew of monetary easing steps to provide ample funds to ensure stable inflation by supporting the economy.

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