Bank of Japan (BOJ) Governor Kazuo Ueda kept rate hikes in play this year by turning a potentially messy parliamentary hearing into a relatively straightforward reiteration of policy in his first public remarks following a global stock market rout.
“If we are able to confirm a rising certainty that the economy and prices would stay in line with forecasts, there is no change to our stance that we would continue to adjust the degree of easing,” Ueda said in response to questions from lawmakers yesterday.
When asked about the market ructions that occurred earlier this month, Ueda played down the significance of the BOJ’s rate hike last month, citing concerns over the state of the US economy as the key catalyst, adding that the “overdone” worries have since eased.
Photo: Bloomberg
At the same time, he signaled that he does not plan to rush ahead with the next rate hike, saying the BOJ needs to carefully watch the impact of unstable financial markets on the inflation outlook.
The governor’s remarks suggest that the sharp market tumbles early this month would not deter authorities from considering more interest rate increases as the central bank unwinds years of ultra-easy policy, even if the next move is not imminent.
Ueda is sticking to his view that the central bank would hike rates if the economy meets expectations, rather than needing economic data to exceed forecasts to trigger policy moves, said David Forrester, a senior strategist at Credit Agricole CIB in Singapore.
“The fact that Ueda is sticking to this rhetoric despite recent financial market turbulence is positive for the yen,” Forrester said. “He showed no regret about the rate hikes to date and signaled the central bank will raise rates further if data continue to track its projections. The takeaway — recent volatility in stocks and the yen hasn’t derailed the plans to normalize policy.”
While the BOJ is widely expected to stand pat on policy when the board meets next month partly to avoid any market ripples when Japan’s ruling party chooses a new leader, many surveyed economists expect the bank to increase borrowing costs again by December.
Ueda’s comments on watching markets for now echoed remarks delivered by his deputy, Shinichi Uchida, earlier this month when the central bank was looking to reassure jittery investors. Still, the governor stopped short of repeating Uchida’s pledge not to raise rates when markets are unstable.
Instead he pledged to carefully communicate the bank’s thinking to ensure market participants are not taken by surprise.
“We will watch financial markets with an extremely high sense of urgency for the time being,” he said.
“For those market participants looking for some comments as dovish as Uchida’s, his remarks were a little negative, but the impact was limited,” Pictet Asset Management Japan Ltd strategist Jumpei Tanaka said.
The BOJ has been criticized by those who said the July 31 hike and Ueda’s post-decision pledge to continue raising rates if conditions allow were key factors that triggered a massive sell-off on global financial markets days later.
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