MNI BOJ WATCH: Ueda Says BOJ Has Time To Watch Price Moves

MNI (TOKYO) - Yen strengthening over the past two months has eased upside inflation risks and made a rate hike less necessary in the short term, Bank of Japan Governor Kazuo Ueda said on Friday, following the board’s decision to hold its policy rate at 0.25%.

Ueda downplayed the potential for a 2024 rate hike, despite conceding the economy and prices remained on track, noting uncertainty on the U.S. and global economy would drive financial market volatility and BOJ caution. 

However, Ueda maintained his policy stance that the Bank would adjust the degree of easy policy if the Bank achieved its outlook for the economy and prices as real interest rates remained low.

The Board’s decision was largely anticipated but follows July’s meeting which surprised markets with a 15-basis-point hike to the unsecured overnight call loan rate. (See MNI BOJ WATCH: Board To Hold, Examine Economy, Price Risks) BOJ dated overnight index swaps continue to show little belief in a hike this year, with a 5% probability of an increase at October’s meeting and a 20% chance of a lift in December. 

U.S. FEARS

Ueda told reporters this afternoon the Bank would closely monitor financial market volatility and the U.S. economy to gauge whether the Federal Reserve could achieve a soft landing, which remains the BOJ's main scenario. "But the risk is slightly increasing as U.S. economic data after August are weak,” he continued, noting the Fed could still implement rapid cuts even if the U.S. economy proved resilient. 

“We have to make sure of the outlook for the U.S. economy,” he said. 

Wages continued to increase following April’s wage-hike agreement, paving the way for further raises in 2025, he said, warning a U.S. downturn had the potential to stall further gains. 

BOARD ASSESSMENT 

The BOJ board largely maintained its assessment on the overall economy and major economic components, although it slightly upgraded its assessment on private consumption. (See MNI POLICY: BOJ Hikes To Weather Weaker Consumption) 

“Japan’s economy has recovered moderately, although some weakness has been seen in part,” a statement released by the BOJ noted. “Japan’s economy is likely to keep growing at a pace above its potential growth rate.” The bank said private consumption has been on a "moderate increasing trend despite the impact of price rises and other factors.” The previous view held that private consumption "has been resilient.”

Policymakers will now focus on the results of the BOJ’s September Tankan business sentiment survey due Oct. 1 and the branch managers’ reports at the quarterly meeting on Oct. 7. 

The Board next meets Oct 30-31.