Askume, Sept 20 – The Bank of Japan kept interest rates steady on Friday and raised its assessment of consumption, showing its confidence in a strong economic recovery that will allow it to raise interest rates again in the coming months.
As widely expected, the Bank of Japan kept short-term interest rates steady at 0.25% at a two-day meeting that ended on Friday.
The following is an excerpt of remarks made by Bank of Japan Governor Kazuo Ueda at the press conference following the meeting (translated by Askume):
interest rate
“Our monetary policy decisions will depend on current economic, price and financial developments. Real interest rates in Japan are extremely low. If our economic and price forecasts come true, we will raise interest rates and adjust the level of monetary support accordingly.”
Economic Prospects
“There is great uncertainty in the outlook for overseas economic growth and the market is still volatile. We need to pay attention for the time being.”
Price Targets
“We will carefully examine how these risks affect our outlook and the likelihood of achieving our value targets.”
exchange rate
“In the context of recent exchange rate movements, the risk of inflation rising due to higher import prices has significantly decreased. Therefore, we have some time to decide on nominal wages.”
“Wages should increase in line with the sustainable achievement of our value goals. Nominal wages are rising, reflecting strong wage negotiations and earnings growth. Bonuses are on the rise. We expect wages to continue to rise.”
On whether the market has stabilised, “It’s hard to say how long it will take to determine [whether the market has stabilised]. We don’t have a specific time frame. But one factor we want to watch is whether the recovery in the US economy will have a soft landing, or whether the recession will be more severe.”
Salary negotiation
“We hope next year’s wage negotiations will go well. But we must carefully examine how overseas economic developments affect business activity and profits.”
wages generally rise
“Wage growth is rising, but some small companies are struggling. We want to carefully review whether wage growth will increase or not,” he said in a statement. We may also raise our inflation forecasts based on domestic data, but the increased uncertainty about the US economic outlook dampens some of our optimism about the neutral rate.
“So far, we have not lowered our forecast for Japan’s neutral interest rate… we need to deepen our analysis, including the impact of two rate hikes this year.”
The lower limit of the neutral rate “When we talk about the estimated lower limit of Japan’s neutral rate, we don’t have a specific level in mind. We won’t necessarily slow down when we get close to that level. But we will be particularly careful about where we are going. Regarding inflation in August, the interest rate hike, “It was stronger than expected. This is partly due to the impact of the weakening yen. Including other one-time factors, there will be a large part of them. On the other hand, service prices are also rising together.” In our forecast, rising wages will put pressure on inflation, and we also need to consider overseas uncertainties and market trends. The Bank of Japan will focus on key factors when formulating policy
“The first is whether wages will continue to rise, including the impact of the expected increase in the minimum wage. The second factor is whether companies will continue to pass on rising (labor) costs to service prices. The outcome of next year’s wage negotiations will also affect whether consumption will remain strong. Potential risks of the Bank of Japan raising interest rates
“Generally speaking, each country makes monetary policy to achieve economic and price stability. Therefore, the monetary policy cycles of different countries may be different. Obviously, the United States has entered an interest rate reduction cycle. If this causes the US economy to achieve a soft landing, it will not have a major negative impact on the Japanese economy, but if the US economy faces a more drastic adjustment, we may need to change this view.”
Regarding whether the Bank of Japan will raise interest rates in October, “I will not comment in advance on whether we will make monetary policy changes at future policy meetings.” US soft landing as the main scenario “We still see the US soft landing as the main scenario. But the US data has been somewhat weak since the beginning of August, so the risk has increased. “As far as the Japanese economy is concerned, its development is in line with our forecasts,” he said. , mainly the US economic outlook. We have also seen some market volatility. So it is not that the probability (of achieving our price target) has increased significantly and whether an immediate rate hike will be necessary depends on the data. We need to pay attention not only to domestic data but also to the development of the US economy. We are already carefully reviewing the data, but need to pay even more attention and make a comprehensive decision.
