European Central Bank President Christine Lagarde said it would take "significant changes" for the bank's policy path to differ from what she expects, in an interview with Japan's Yomiuri Shimbun published by the ECB on Saturday, as euro zone inflation runs at 4%, double the bank's 2% target.

The interview, conducted on Nov. 4, gave a Japanese audience the clearest signal from Frankfurt since the ECB held its deposit rate at 2.5% on Oct. 29. For investors in Asia, it matters on two fronts. A December move by the ECB would add to tightening pressure from the Bank of Japan, which has also kept a December hike in play. And Lagarde tied the rise in long-term government bond yields partly to the borrowing needs of the AI industry, a theme closely watched in Asia.

Lagarde Sees Inflation Staying High

Lagarde said headline inflation of 4% in October was above what the ECB had expected a few months earlier, but in line with market forecasts. She put most of it down to energy, where inflation rose to 20.8% from 18.9% in September. She blamed the conflict in the Middle East and reduced global refinery capacity.

Underlying measures were steadier, she said. Core inflation, which strips out energy, food, alcohol and tobacco, held at 2.5%. Services inflation edged up to 3.3%. The ECB has not seen signs of second-round effects beyond those already built into its projections, she said, and is watching multi-year wage deals and companies' wage expectations.

Still, she warned that inflation numbers will remain high in the coming quarters, and that the longer they stay high, the greater the risk to the medium-term target. She declined to say whether staff would raise their forecasts in December. Energy futures and long-term interest rates are both higher than when the September projections were made, she noted, though oil prices have eased recently.

Asked whether the ECB should raise rates before second-round effects appear, Lagarde said she could not promise a December move. Decisions remain data-dependent and taken meeting by meeting. But she repeated the line from her Oct. 29 press conference that the direction of travel is clear barring major developments. At that press conference she said that "the direction of travel is quite clear for all of us." The next decision is due Dec. 17.

Isabel Schnabel, the ECB executive board member who leaves in early January, made a similar case in a Frankfurt speech on Nov. 5. She said the right response to a supply shock depends on how it changes the projected inflation path, not on its type, and that a large and lasting supply shock can require a timely policy response. Consumer inflation expectations over the medium to longer term have risen and moved away from 2% since the latest energy shock, she said.

France, Debt and the AI Borrowing Boom

The Yomiuri asked Lagarde about France, where long-term rates have risen. She said yields at the long end have climbed worldwide, not only in Europe, because of higher inflation linked to geopolitical disruption, heavier government bond issuance and competition between governments and the hyperscalers for financing. High-debt sovereigns and the AI sector both need large amounts of capital, she said, and countries with high debt are more sensitive to those higher global rates.

Her message to euro zone governments was to follow the bloc's fiscal rules. Asked whether the ECB would use its Transmission Protection Instrument, the bond-buying tool designed to counter disorderly moves in a member's borrowing costs, she said no tool is ruled out in advance, but each comes with criteria and conditions and needs a judgment by the Governing Council.

Schnabel's speech pointed in the same direction. She argued that investment needs tied to the green and digital transitions, together with geopolitics, have turned the savings glut of past decades into a "bond glut," pushing up both inflation and the neutral rate of interest.

France's 10-year government bond yield was about 4.75% in Trading Economics data on Monday, after it fell to its lowest level since late September as oil prices eased.

Ties With Japan

Lagarde also spoke about cooperation with Japan. She said Japan, Europe, Canada and the U.K. can share principles and objectives and join forces when the previous global order is disrupted. She said central banks, including the Bank of Japan, must work together against cyberattacks, which she said are becoming more dangerous with AI.

On the digital euro, she said the project is designed for Europe first but should be interoperable with central bank digital currencies elsewhere, possibly by linking the euro area's TARGET Instant Payment Settlement system with fast-payment systems in other jurisdictions.

Lagarde, who announced on Oct. 29 that she will step down early on Feb. 7, 2027, said she wants to speak more freely about issues including France's presidential election. She said chairing the World Economic Forum is one of her options, though nothing has been decided.

Several ECB officials speak this week. According to the bank's calendar, chief economist Philip Lane gives a keynote at a Bank of England conference in London on Tuesday, Lagarde joins panels in Paris on Wednesday and Thursday, and Schnabel speaks in Vilnius on Friday.