Bank of Japan Governor Kazuo Ueda, in a closely watched speech on Monday, avoided explicitly suggesting he would raise interest rates at his December meeting.
This was Kazuo Ueda's last major speech before the Bank of Japan's December 18-19 meeting and his first speech on monetary policy since the US election. He said the timing of the central bank's next policy adjustment will depend on the economy and prices. He reiterated his data-dependent stance and left an open mind on the timing of the next rate hike.
“The actual timing of the adjustment will continue to depend on developments in economic activity and prices, as well as future financial conditions,” Ueda told local business leaders in the central Japanese city of Nagoya.
The yen fell nearly 0.5% to 155.14 against the dollar on Monday, while benchmark Japanese bond yields fell slightly, as Ueda's comments were less hawkish than some market participants expected. Overnight index swaps continue to price in about a 54% chance of a Bank of Japan rate hike in December.
Speaking to reporters after his speech, Ueda gave no clear hints about the likelihood of a rate hike next month. Asked if he could say there was a good chance of a rate hike, as he did before the July increase, the BOJ governor simply reiterated his recent comments.
“For example, for the December meeting, we will make the right policy decision after assessing risks and other information gathered since the October meeting and adjust our outlook as needed,” Ueda said.
The Bank of Japan has acknowledged the need to improve communication after its July rate hike sparked market volatility, sparking speculation that Ueda will communicate the central bank's intentions more clearly before its next move.
“Before Ueda’s speech, there was speculation that he would make hawkish comments as the yen had fallen to the upper 150 range,” said Juntaro Morimoto, senior currency analyst at Sony Financial Group Inc. “If he doesn’t make any comments indicating further rate hikes at the December meeting, there is a risk of further yen selling.”
Ueda said the Bank of Japan is on track to raise rates by sticking to its standard stance on the issue, reiterating his stance that the central bank will continue to raise its policy rate if its expectations for economic activity and prices materialize.
"Kazuo Ueda is being more cautious than expected," said Masamichi Adachi, chief Japan economist at UBS Securities and a former Bank of Japan official. "The BOJ may think it's too early to make any decision with a month to go until the next meeting. But that doesn't mean there won't be a rate hike in December. Kazuo Ueda is monitoring various risks while looking for the right timing."
Ueda said the Bank of Japan needs to keep a close eye on various risks and their possible impact, including on the U.S. economy, while also noting that a soft landing in the United States is more likely given recent positive data.
After last month’s policy meeting, Ueda stressed that because risks to the U.S. economy had largely receded, there was no need to say the central bank “had time to think” before making any policy changes.
Regarding Trump's recent election as U.S. president, Ueda did not discuss specific details and said the overall picture of Trump's policies and their impact will take time to become clearer.
For now, Ueda's tone suggests he is not committing to a specific date for the next rate hike.
"Gradual adjustment of the degree of easing in line with improvements in economic activity and prices will support long-term economic growth. This will help achieve the price stability objective in a sustainable and stable manner," he said.
A Reuters poll conducted from Oct. 3 to 11 showed that the vast majority of economists expect the Bank of Japan to abandon interest rate hikes this year, but nearly 90% expect a rate hike to come before March next year.
The Bank of Japan ended negative interest rates in March this year and raised its short-term policy rate to 0.25% in July. At that time, Kazuo Ueda pointed out that one of the factors leading to the July rate hike was the growing inflationary pressure from the weak yen, which would push up import costs. This has led many market participants to bet that the yen's trend will be key to the timing of the next rate hike by the Bank of Japan.
"A weak yen does push up costs and has a big negative impact on consumers. But it is positive for exports and inbound tourism. The overall impact on the Japanese economy is not easy to assess," Ueda said of the yen's recent decline.
Article forwarded from: Jinshi Data
