Bank of Japan Governor Ueda Discusses Economic Progress and Potential Rate Hike
Bank of Japan Governor Kazuo Ueda acknowledged progress in achieving sustained wages-driven inflation but remained ambiguous about the possibility of another interest rate increase next month. He reiterated the BOJ's readiness to adjust borrowing costs if the economy aligns with its forecasts, indicating that domestic conditions for another rate hike were favorable.
However, Ueda emphasized the need to monitor external risks, including uncertainty surrounding the U.S. economic outlook and volatile financial markets. He stated that the timing of any adjustments to monetary policy would depend on the economic, price, and financial outlook.
Ueda's remarks led to a slight increase in the dollar's value against the yen, as some traders adjusted their expectations of a December rate hike. Markets currently assign a 55% probability to a quarter-point rate increase at the BOJ's December meeting.
The BOJ ended negative interest rates in March and raised its short-term policy rate to 0.25% in July, anticipating that Japan was nearing its 2% inflation target. Ueda cited rising inflationary pressure from a weak yen, which boosts import costs, as a factor contributing to the July rate hike.
Ueda expressed confidence that domestic conditions were conducive to a near-term rate hike, citing rising wages and robust profits driving up consumption and capital expenditure. He noted that companies were raising prices for both goods and services, indicating that inflation was increasingly driven by domestic demand and higher wages rather than rising raw material costs.
Ueda emphasized the importance of monitoring global growth, particularly its impact on Japan's export-reliant economy. He expressed optimism about the U.S. economy achieving a soft landing scenario, noting improving market sentiment due to receding concerns about the U.S. outlook. However, he stressed the need for continued vigilance regarding external risks, including the potential for renewed market volatility from geopolitical factors.