Japanese Prime Minister Shigeru Ishiba said on Wednesday that Japan is not in an environment suitable for further interest rate hikes after meeting with Bank of Japan Governor Kazuo Ueda, his clearest statement yet against further rate hikes and an apparent attempt to shake off his reputation as a hawk on monetary policy.
The yen weakened after Ishiba's comments, as the market interpreted them as reducing the possibility of a near-term rate hike. The dollar-yen exchange rate briefly broke through 147 on Thursday, hitting a new high since September 3, after rising 2% the day before, breaking through three levels from 144 to 146.
A Reuters poll conducted from September 4 to 12 showed that most economists expected the Bank of Japan to raise interest rates again before the end of the year.
Shigeru Ishiba, who was formally appointed prime minister on Tuesday, is seen by markets as supportive of the Bank of Japan's policy normalization, in part because he said in August that gradually raising ultra-low interest rates would help improve Japan's profitability.
Analysts say his comments now, and his focus on pulling Japan fully out of economic stagnation, underscore the new government's preference for the Bank of Japan to slow the pace of rate hikes.
Ishiba's newly appointed Economics Minister Ryosei Akazawa also said on Wednesday that he hopes the Bank of Japan will be cautious in raising interest rates further.
Akazawa said that while the Bank of Japan's current policy rate of 0.25% is "anomalous by global standards," Japan's top priority is to "escape from deflation."
Bank of Japan to adopt "cautious approach"
Ueda said after his meeting with Ishiba that he told the prime minister the Bank of Japan would proceed cautiously in deciding whether to raise interest rates further.
“I told the prime minister we are supporting the economy with easy monetary conditions,” Ueda said in his first meeting with Ishiba.
He added that the BOJ would raise interest rates if economic and price developments were in line with its forecasts. “But I have said that we will adjust the extent of monetary support carefully because we have the ability to take our time to review (economic) developments,” he said.
The Bank of Japan ended negative interest rates in March and raised short-term borrowing costs to 0.25% in July as policymakers believe Japan is on track to achieve durable 2% inflation.
Ueda was forced to retract his comments on the Bank of Japan's July rate hike after his previous hawkish comments triggered a market crash, and is about to continue to raise borrowing costs.
In a speech ahead of a meeting with Ishiba on Wednesday, Ueda said the BOJ would for now remain “highly” alert to the economic impact of market instability and global economic uncertainty.
The BOJ will review rates again on Oct. 30-31, when the board will also release new quarterly growth and price forecasts. Its last meeting of the year will be in December.
"The comments by Shigeru Ishiba and Ryomasa Akazawa are clearly negative about further rate hikes in the near term. An October rate hike is now out of the question," said Yoshimasa Maruyama, chief market economist at SMBC Nikko Securities. "The obstacles to another rate hike before the end of the year have also increased," he said.
Article forwarded from: Jinshi Data