New Japanese Prime Minister Shigeru Ishiba’s unexpected warning against raising interest rates is pushing back expectations of another central bank move this year and raising doubts about his communications.
Ishiba triggered a sharp yen slide on Wednesday after he said Japan was not ready for higher borrowing costs for the time being, in an unusually direct remark for a prime minister following his meeting with Bank of Japan (BOJ) Governor Kazuo Ueda.
“This is a surprise,” said Tsuyoshi Ueno, a senior economist at NLI Research Institute in Tokyo.
Photo: EPA-EFE
“This has strengthened my view that there will be no rate hike in December,” Ueno said.
The BOJ holds its next policy meeting later this month and was already widely expected to hold rates steady given its recent cautious signals and the timing of a general election called by Ishiba.
The comments from the new prime minister, a self-declared “defense nerd,” likely reflect his inexperience in communicating with markets. A sharp fall in Tokyo stocks at the start of this week following his victory in the ruling party leadership vote might have contributed to a desire to reassure investors.
“Ishiba may be trying to brush off an image of supporting rate hikes as some in the market view him that way,” Mizuho Securities Co senior market economist Yusuke Matsuo wrote in a note yesterday.
Japanese Chief Cabinet Secretary Yoshimasa Hayashi told reporters yesterday morning that Ishiba believes the specifics of monetary policy should be left to the BOJ, and that the government is monitoring markets with a sense of urgency.
Japan’s currency briefly reached ¥147.24 against the US dollar yesterday morning as investors factored in Ishiba’s comments and stronger-than-expected US jobs data. That is already weaker than the level immediately before Ishiba’s unexpected victory over central bank easing advocate Sanae Takaichi in the ruling party’s leadership election on Friday last week.
The leadership change has fueled volatility in the market, as investors remain skittish over the policy direction of the new leader.
“In a way, Ishiba is trying to show he is market friendly as he probably wants to do everything he can to raise the likelihood of a clear victory in the election,” Ueno said.
“But it doesn’t mean Ishiba will always be putting pressure on the BOJ. I still expect the next hike to come in January,” Ueno added.
Meanwhile, a leading dove on the BOJ’s policy board stressed the need to keep financial conditions easy until inflationary expectations take root, reinforcing the bank’s stance that it would not move too soon.
“It will still take time to establish a public mindset that’s aligned with the 2 percent inflation target,” Asahi Noguchi said yesterday in a speech in Nagasaki.
“Until then, it’s important, more than anything, to maintain accommodative financial conditions patiently,” Noguchi added.
Noguchi, one of two dissenters from the July 31 decision to hike rates, spoke after Ishiba said he sees no need for a rate hike for now. Noguchi’s remarks confirm market views that some dovish opinions remain on the nine-member board, even as authorities have sought to normalize policy by rolling back ultra-loose settings.
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