MNI BOJ WATCH: Ueda Keeps Jan Hike Alive, Notes Risks
MNI (TOKYO) - Bank of Japan Governor Kazuo Ueda left open the possibility of a January hike following the Board’s decision Thursday to hold the policy rate at 0.25%, stressing to reporters that greater insight into wages and the U.S. economy was needed before a move higher.
“Economic activity and prices are largely moving in line with the bank’s forecast,” he said, noting the performance of the U.S. economy and financial markets would risk any potential future hike.
The Bank is in no rush to raise the policy rate as underlying, or the expected inflation rate, is slow, he explained. However, the BOJ must consider the risk of falling behind the curve carefully as real interest rates remain at very low levels, Ueda warned.
The BOJ Board’s largely expected decision followed an 8-to-1 vote to hold the rate steady, with former banker Naoki Tamura the sole proponent of a 0.50% rate, citing the increasing upside risk to prices. (See MNI BOJ WATCH: Board To Hold, Chart Cautious Path) MNI reported earlier this month political considerations were influencing the BOJ’s policy strategy more than economic fundamentals. (See MNI POLICY: BOJ’s Political Concerns Slowing Hikes)
BOJ overnight index swaps markets have priced in a 10% chance of a hike at the Jan 18-19 meeting with a 0.50% policy rate not expected until June.
WAGE DATA NEEDED
While pay increases at major firms due to high corporate profits has increased the Bank’s confidence, Ueda still wants to see further data to confirm its momentum and gauge the impact on prices. Heightened uncertainty over the U.S. economy including the effects of President-elect Donald Trump’s economic and trade policies, together with wage concerns, drove the Board’s decision, he explained.
Ueda said a certain level of wage momentum and the outlook for the U.S. economy will become clearer at the January meeting and the BOJ will make a comprehensive judgment based on available data and information at that time.
Major firms will publish wage-hike trends in or after January, providing policymakers with solid information to gauge whether pay increases, including base pay, are tracking close to 5%.
The BOJ, however, was not awaiting any one specific data point regarding policy decisions, Ueda stressed, adding the Bank is also carefully watching the impact of foreign-exchange rates on prices.
The yen traded at JPY157 against the greenback following today’s call from JPY153 on Wednesday.