:The Bank of Japan kept interest rates unchanged on Thursday but one dissenting board member’s proposal to push up borrowing costs showed the central bank remains on track to tighten policy early next year.
As widely expected, the nine-member BOJ board voted 8-1 to keep its short-term policy rate unchanged at 0.25 per cent in a sign policymakers preferred to tread cautiously amid uncertainty over U.S. president-elect Donald Trump’s economic plans.
Following are excerpts from BOJ Governor Kazuo Ueda’s comments at his post-meeting news conference, which was conducted in Japanese, as translated by Reuters:
JAPAN’S NEUTRAL RATE OF INTEREST
“We are mindful that when we are late in raising interest rates, it would mean the pace of future rate hikes could quicken if we want to eventually push up rates near neutral. We are, of course, mindful of this when making policy decisions. Having said that, underlying inflation is heightening but at a moderate pace. That is allowing us to go slow in raising rates.”
HOW LONG WILL BOJ WAIT FOR CLARITY ON TRUMP’S POLICY?
“It’s true uncertainty will never disappear. But as time passes, we will have more information that we can incorporate in producing our forecasts … There’s a risk we could be behind the curve by waiting too long. That’s something we will also take into account in setting monetary policy.”
JAPAN’S RATE OUTLOOK
“Real interest rates remain very low. If the economy and prices move in line with our forecast, we will continue to raise our policy rate. As for the timing of adjusting the degree of monetary support, we need to scrutinise various data carefully in reaching a decision.” STRENGTH OF JAPAN’S WAGE-INFLATION CYCLE
“We need some more information on the outlook for wages, including the momentum of next year’s wage negotiations, to confirm the strength of Japan’s wage-inflation cycle.”
UNCERTAIN OUTLOOK
“Uncertainty remains on the U.S. and overseas outlook. There’s also uncertainty on the incoming U.S. administration’s policies.” NEW U.S. ADMINISTRATION IN FOCUS “The U.S. economy overall remains firm. But there’s uncertainty over the policies of the incoming U.S. administration, so we need to scrutinise the impact more carefully.”
GLOBAL IMPACT OF U.S. TRADE POLICIES “The incoming U.S. administration’s fiscal, trade policies have a huge impact not just on the U.S. but global economies, as well as financial markets. We need to scrutinise the impact on Japan’s economy. We don’t need to wait for a specific data or event in deciding monetary policy. We will scrutinise whatever available data at each policy meeting, in setting policy.”
IMPACT OF YEN MOVES ON JAPAN’S INFLATION
“Looking at recent data, the year-on-year increase in import costs seem to have stabilised somewhat.”
JAPAN WAGE OUTLOOK
“Needless to say, both Japan’s wage outlook and the impact of Trump’s policies would take a long time to grasp the entire picture. We will need to make a decision based on what information we have at our disposal at each policy meeting.” PACE OF RATE HIKE
“The reason why we are moving slowly in raising interest rates is because the rise in underlying inflation is very moderate.”
SUSTAINABILITY OF WAGE HIKES
“Domestic data have mostly been on track for the past few months. Taken together, the likelihood of Japan’s economy moving in line with our forecast is heightening. But we’d like one notch more information to believe we can raise interest rates. That includes the sustainability of wage increases. That’s why we’d like to scrutinise the momentum of next year’s wage negotiations more.”
SUFFICIENT WAGE DATA TO HIKE RATES IN JANUARY?
“It’s impossible to predict what kind of comment we’ll get from business executives. We’ll scrutinise these comments and, coupled with other information, predict the wage outlook. We’ll also look at other data and information, to make a comprehensive decision.”
DOES BOJ SEE 0.5 per cent AS PSYCHOLOGICAL CEILING FOR RATE HIKES?
“I don’t see 0.5 per cent as a specific ceiling. But as we raise interest rates toward levels deemed neutral, we need to be increasingly mindful of various factors. We’re always vigilant to various factors, but we must be even more so as rates approach neutral.”