Bank of Japan (BOJ) Governor Kazuo Ueda maintained a cautious stance on interest rate hikes in his speech yesterday, following his earlier comments suggesting that the central bank may hold off on raising rates. Ueda’s remarks came as a surprise to investors who had expected a rate hike next month, assuming no action was taken during the BOJ’s recent meeting. Among the uncertainties influencing the bank’s policy, Ueda highlighted the economic stance of U.S. President-elect Donald Trump.
Continuing his cautious tone, Ueda emphasized the need to keep rates low to support Japan’s economy but also acknowledged the risks of maintaining them at such levels for too long. “There are many uncertainties, including the yen and Trump,” said Masato Koike, senior economist at Sompo Institute Plus Inc. He noted that while Ueda’s speech left room for a potential rate hike in January, the chances were greater for a move in March. “It’s still too early to commit to a hike or no hike in January,” Koike added.
The yen weakened against the U.S. dollar following Ueda’s comments, falling to ¥157.37 from ¥157.13, signaling a shift in market expectations toward a later rate increase.
Ueda also reaffirmed the BOJ’s commitment to supporting Japan’s economy as it seeks stable 2% inflation. He emphasized the need for easy financial conditions, warning against a return to deflation or low inflation. “We must ensure Japan’s economy does not fall back into a deflationary environment,” he stated.
In his address, Ueda mentioned that the upcoming spring wage negotiations would be a crucial factor in determining the economic outlook, alongside monitoring the U.S. economy. The BOJ has kept its benchmark interest rate at 0.25% following its December policy meeting.
Japan’s inflation has remained at or above the BOJ’s target for over two years, and some economists argue that the country may be ready for another rate hike. However, concerns over Prime Minister Shigeru Ishiba’s minority government securing support for the annual budget could make policymakers hesitant to act.
Ueda’s speech marked his final public address of the year. The BOJ’s board will meet again on January 24 to make its next policy decision.
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