BOJ’s governor signals no immediate rate hike

Bank of Japan Governor Kazuo Ueda refrained from indicating a potential interest rate hike next month, emphasising the importance of closely monitoring economic risks in remarks that slightly weakened the yen.

The timing and speed of adjusting the level of monetary support will be determined by the evolution of economic activity, prices, and financial conditions in the future, Ueda stated during a speech at a business conference in Tokyo on Wednesday.

The bank must carefully consider domestic and international risk factors and assess their impact on Japan’s economic activity, prices, and the likelihood of achieving the outlook, he stated.

The speech follows Ueda’s recent suggestion that the BOJ might delay raising rates, which caught investors off guard as they were anticipating a rate hike in January if the bank did not act in December.

Ueda mentioned that the policy stance of President-elect Donald Trump was one of the uncertain factors at that time. The governor’s surprising dovish stance led to a drop in the yen and warnings from Japan’s finance ministry about speculative currency movements.

Ueda continued in a similar manner on Wednesday, indicating a desire to maintain flexibility by emphasising the importance of keeping rates low to boost the economy while also acknowledging the potential risks of prolonged low interest rates.

Masato Koike, senior economist at Sompo Institute Plus, stated that Governor Ueda is maintaining a cautious approach due to various uncertainties such as the yen and Trump, keeping his hands free.

Today’s speech suggests that a January rate hike is still possible, but the probability of a March increase is more likely. It is too soon to definitively decide on a rate hike for January, Koike added.

The yen’s value dropped to 157.37 against the dollar after his remarks in Tokyo, down from 157.13 at the beginning of his speech. This shift indicated a growing expectation among traders for a delayed interest rate increase.

Attribution: Bloomberg

Subediting: M. S. Salama