Aug 23 (Reuters) – Bank of Japan Governor Kazuo Ueda on Friday reaffirmed his resolve to raise interest rates if inflation stayed on course to sustainably hit the 2% target, suggesting recent market volatility would not derail its long-term rate hike plan.
But Ueda warned that markets remained jittery and may affect the BOJ’s inflation forecasts, a sign that yen and stock price moves will be key to determining the next rate hike timing.
Ueda said the market volatility seen in early August was due to rising fears of a U.S. recession, stoked by the country’s weak economic data, while the BOJ’s interest rate hike in July led to a sharp reversal of “one-sided yen falls”.
“Markets at home and abroad remain unstable, so we will be highly vigilant to market developments for the time being,” Ueda said in parliament, where he was summoned to explain the BOJ’s decision in July to raise interest rates.
But he said there was “no change to the BOJ’s basic stance to adjust the degree of monetary easing if it became convinced that economic and price developments were moving as forecast.”
The remarks suggest the BOJ may spend more time than initially expected in considering its next rate hike, but stay on course to gradually hike borrowing costs from current still ultra-low levels.
“Japan’s short-term rates are very low. If the economy is in good shape, they will move up to levels deemed neutral,” Ueda said. But he added that there was “very high uncertainty on where rates will eventually rise to.”
The yen rose against the dollar on Ueda’s comments as investors interpreted them as signaling more rate hikes would be forthcoming.
The BOJ ended negative interest rates in March and raised its short-term policy rate to 0.25% in July in landmark steps away from a decade-long radical stimulus programme.
In tightening policy in July, Ueda said the BOJ would raise rates further if inflation remains on track to durably hit its 2% target in coming years, as the board projects.
Ueda said volatile moves in the yen could affect the BOJ’s median inflation projections, in which case the board would debate whether a policy shift was needed.
However, even if yen moves do not affect the BOJ’s median forecasts, they could warrant changing policy if they posed big enough upside or downside risks to those projections, he said.
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Reporting by Makiko Yamazaki, Satoshi Sugiyama and Leika Kihara; Editing by Muralikumar Anantharaman and Sam Holmes
Our Standards: The Thomson Reuters Trust Principles.
Jessica Roberts is a seasoned business writer who deciphers the intricacies of the corporate world. With a focus on finance and entrepreneurship, she provides readers with valuable insights into market trends, startup innovations, and economic developments.
