FILE PHOTO: Bank of Japan (BOJ) Governor Kazuo Ueda delivers a speech during a commemorative ceremony on the day the new notes of 10,000 yen, 5,000 yen and 1,000 yen went into circulation, at the BOJ headquarters in Tokyo, Japan July 3, 2024. REUTERS/Wataru Sekita/Pool via REUTERS/File Photo
JAPAN: Bank of Japan (BoJ) governor Kazuo Ueda says interest-rate hikes are “nearing” as inflation and economic trends develop in line with the central bank’s forecasts, without explicitly supporting an increase in December.
“We will adjust the degree of monetary easing at the appropriate time if we become confident or certain that the economy will move as forecasted by our economic and price outlook – particularly that the underlying inflation rises toward 2%,” Ueda said in a Nikkei interview conducted last Thursday and published last Saturday in Tokyo.
The yen remained higher against the dollar following publication of the interview after strengthening nearly 1% last Friday. Publication of Ueda’s remarks followed increased market bets on a December rate hike in response to data Friday that showed inflation in the capital moving in line with the BoJ’s forecasts.
While the central bank chief usually speaks with a media outlet once or twice a year, the latest interview comes ahead of the December board gathering and may be part of the BoJ’s efforts to enhance its communications.
The central bank faced criticism over its communications after its July 31 rate hike surprised some market participants, helping to set the stage for market turmoil in early August.
Ueda told Nikkei that next rate hikes are “nearing in the sense that economic data are on track”.
He added he’d like to keep a close eye on wage trends, particularly with the 2025 spring wage negotiations, or shunto.
Wage growth is approaching a level consistent with 2% inflation, he said, while also pointing to uncertainty surrounding the US economic outlook given the incoming Trump administration.
In recent days, movements in the overnight swaps market have shown that traders have largely seen a roughly 60% chance of the BoJ increasing its benchmark rate from the current 0.25% when authorities next decide policy on Dec 19.
That compares with around 30% at the beginning of the month.
The BoJ governor said that further weakening of the yen as inflation rises above 2% may spur “countermeasures” from the central bank.
In a Bloomberg survey in October, more than 80% of economists said they expected another hike by January, with just over half of respondents pointing to a December move. Japan’s key inflation gauge has remained at or above a 2% target for more than two and half years. — Bloomberg
The measure of Tokyo price growth last Friday beat the market consensus, underpinning hopes that the positive wage-inflation cycle long sought by the central bank may be emerging.
Ueda last week said it’s “impossible” to predict the result of the next gathering as a large amount of new data, including on inflation, had yet to be released. While he is looking for further evidence of a virtuous wage-inflation cycle in Japan, he has also said he is closely watching prospects for the US economy.
A special parliamentary session that opened this week in Tokyo is likely to present Ueda with further opportunities to communicate his thinking on monetary policy.
The governor noted the lack of opportunities to convey the BoJ’s thinking before the rate hike in July. — Bloomberg
