TOKYO, Sept 20 (Askume) – The Bank of Japan kept interest rates steady on Friday and its governor said it was able to take its time to focus on the impact of global economic uncertainty, suggesting it was in no rush to raise borrowing costs further.
The dovish comments pushed the yen lower, adding to uncertainty over whether the Bank of Japan will be able to raise interest rates again this year as many market players anticipate.
Bank of Japan Governor Kazuo Ueda said Japan’s economy’s growth is in line with expectations, and rising wages have boosted consumption and enabled the inflation rate to reach the central bank’s 2% target.
But he said financial market volatility and uncertainty about whether the U.S. economy could ease required the Bank of Japan to take more time to determine whether further interest rate hikes were needed.
“The outlook for overseas economic growth remains highly uncertain. The market remains volatile. We need to carefully review such developments for the time being,” Ueda said at a news conference after the Bank of Japan decided to keep short-term interest rates steady at 0.25%.
He said the yen’s recent rebound has eased pressure on import costs and reduced the risk of rising domestic inflation. “So we can take some time to make policy decisions.”
The dollar rose above 143 yen after Ueda’s reassuring comments, but he gave no strong hint at the possibility of an interest rate hike in the near term.
Chief economist Atsushi Takeda said: “The governor emphasized the risks surrounding the US economy and reaffirmed the idea that the Bank of Japan will not raise interest rates when the market is unstable. This may weaken the market’s expectations for rate hikes at the end of the year.” ITOCHU Research Institute.
“But such risks may disappear. I believe the Bank of Japan may still raise interest rates in December,” he added.
The Bank of Japan ended negative interest rates in March and raised short-term interest rates to 0.25% in July, a historic shift from a decade-long stimulus program aimed at stimulating inflation and economic growth.
US economic recession looms
Most economists polled by Askume earlier this month expected the Bank of Japan to raise interest rates again this year, with most betting on a hike in December.
The Bank of Japan believes the economy is on the path to recovery. It also upgraded its outlook on consumption, saying it was at a “moderate growth trend” from a “flexible” assessment in July.
Ueda said the Bank of Japan is ready to raise interest rates if economic and price forecasts come true because Japan’s real borrowing costs are extremely low.
But he added that the timing of the central bank’s rate hike depends partly on whether the US economy will achieve a soft landing or experience an unexpected downturn.
“Based on consumption and other data, Japan’s economy is on track and in line with our forecasts,” he said.
The comments underscore recent weak US data, which has led to the FedThe BSE’s decision on Wednesday to sharply cut borrowing costs has cast a shadow over the Bank of Japan’s path to raise interest rates.
Ueda gave no indication of how much the Bank of Japan might ultimately raise interest rates, saying it is difficult to determine Japan’s neutral interest rate, a level that would neither cool nor heat up economic growth.
Japan’s economy grew at an annual rate of 2.9% from April to June, and real wages rose for two consecutive months in July, easing concerns that rising costs of living would weaken consumption.
But weak demand in China, slowing US growth and a recent surge in the yen have clouded the outlook for the export-dependent country.
Market volatility remains a major concern for BOJ policymakers after the July rate hike and Ueda’s hawkish comments led to a surge in the yen and a sharp drop in stock prices.
