Bank of Japan Governor Kazuo Ueda delivers a speech at the start of issuance of new yen banknotes at the Bank of Japan headquarters in Tokyo on July 3, 2024. (Photo by JAPAN POOL / JIJI PRESS / AFP) / Japan OUT
TOKYO: The Bank of Japan maintained ultra-low interest rates on Thursday but said risks surrounding the U.S. economy were somewhat subsiding, signalling that conditions are falling into place to raise interest rates again.
The central bank also projected inflation to move around its 2% target in coming years, stressing its resolve to keep hiking borrowing costs if the economy sustains a moderate recovery.
"Looking at domestic data, wages and prices are moving in line with our forecasts. As for downside risks to the U.S. and overseas economies, we're seeing clouds clear a bit," Governor Kazuo Ueda told a news conference.
Ueda's remarks were less dovish than those made before Thursday's meeting that the BOJ can "afford to spend time" scrutinising the fallout from risks such as U.S. economic uncertainties and volatile financial markets.
"As for the timing of the next rate hike, we have no preset idea. We will scrutinise data available at the time of each policy meeting, and update our view on the economy and outlook, in deciding policy," Ueda said on Thursday.
As widely expected, the BOJ kept short-term interest rates at 0.25% at its two-day meeting, its first since an inconclusive general election that analysts say will complicate efforts to normalise interest rates after years of ultra-easy policy.
The board cut its core consumer inflation forecast for fiscal 2025 to 1.9% from 2.1% in the previous estimate in July, but said risks were skewed to the upside for that year. It kept unchanged its fiscal 2026 core inflation forecast at 1.9%.
It also saw "core-core" inflation, which strips away the effect of fuel costs and is closely watched by the BOJ as a key gauge of demand-driven price moves, hit 1.9% in fiscal 2025 and 2.1% in 2026 - both unchanged from July.
The report repeated the BOJ's view that it expects underlying inflation to converge around 2% some time around late 2025 or beyond, as service prices continue to rise moderately.
The BOJ ended negative rates in March and raised short-term rates to 0.25% in July on the view Japan was making progress towards sustainably achieving its 2% inflation target.
Ueda has repeatedly said the BOJ will keep raising rates if the economy moves in line with its forecast. But he has also said the bank was in no rush as inflation remained moderate.
Data released on Thursday showed Japan's factory output and retail sales rose in September, suggesting the economy was on track for a moderate recovery.
The ruling coalition's loss of a majority in a weekend election has heightened concerns about policy paralysis, which could raise the hurdle for additional rate hikes, analysts say.
A slim majority of economists polled by Reuters expect the BOJ to forgo a hike this year, though most expect one by March. - Reuters
