OSAKA: The Bank of Japan can afford to spend time scrutinising market and overseas economic developments in setting monetary policy, governor Kazuo Ueda said on Tuesday (Sep 24), suggesting that the central bank was in no rush to raise interest rates further.
Ueda reiterated that the BOJ will raise interest rates if underlying inflation accelerates towards its 2 per cent target as projected, a sign there was no change to its stance to gradually push up borrowing costs from still near-zero levels.
But he warned of risks surrounding the outlook, such as volatile financial markets and uncertainty on whether the U.S. economy can achieve a soft landing.
“We must conduct policy in a timely, appropriate fashion without having any pre-set schedule in mind, taking into account various uncertainties,” Ueda said in a speech to business leaders in the western Japan city of Osaka.
The yen’s “one-sided declines” have reversed since August and significantly lowered the risk of an inflation overshoot by moderating the pace of rise in import prices, Ueda said.
“We need to scrutinise market moves and overseas economic developments behind them in setting monetary policy. We can afford to spend time doing this,” he said.
The remarks highlight a shift in the BOJ’s focus away from inflationary risks, towards the chance of slowing global growth and yen rises weighing on Japan’s export-reliant economy.
They were roughly in line with those Ueda made after the BOJ’s policy meeting on Friday, when the board unanimously voted to keep short-term rates steady at 0.25 per cent.
Ueda stressed that domestic economic conditions were moving in line with the BOJ’s projection with rising wages underpinning consumption and helping push up service-sector prices.
“Underlying inflation is likely to continue rising” with wage increases seen continuing into the next fiscal year and beyond, he said, suggesting that Japan is on track to meet the key prerequisite for raising interest rates further.
But Ueda highlighted the need to scrutinise growing overseas risks, such as uncertainty on how past aggressive interest rate hikes by the Federal Reserve could affect the US economy.
Ueda also said financial markets remained “somewhat unstable,” stressing the need for currency moves to be stable and reflect economic fundamentals.
“For the time being, we will monitor with utmost vigilance financial market developments,” he said.
The BOJ ended negative interest rates in March and hiked short-term rates to 0.25 per cent in July, in a landmark shift away from a decade-long stimulus programme aimed at firing up inflation and economic growth.
The start of Japan’s rate-hike cycle comes as many other central banks cut interest rates after tightening monetary policy aggressively to combat high inflation.
The Fed, for one, last week kicked off an anticipated series of rate cuts with a half-percentage-point reduction after soft labour market data.
