BOJ’s Ueda Still Plans to Hike Rates If Economy Meets Outlook

Toru Fujioka
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(Bloomberg) -- The Bank of Japan is still on a path toward higher interest rates as it unwinds years of ultra-easy settings provided inflation and economic data continue in line with its forecasts, according to Governor Kazuo Ueda.

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“If we are able to confirm a rising certainty that the economy and prices will stay in line with forecasts, there’s no change to our stance that we’ll continue to adjust the degree of easing,” Ueda said in response to questions in parliament Friday.

When asked about the market ructions that occurred earlier this month, Ueda cited concerns over the state of the US economy as a key catalyst, adding that “overdone” worries pertaining to the US economy have since eased.

Still, Ueda signaled he doesn’t plan to rush ahead with the next rate hike as he reiterated the need to carefully watch the impact of unstable financial markets on the inflation outlook for the time being.

The governor’s remarks point to a relatively robust stance that plays down the impact of the BOJ rate hike in triggering the financial market turmoil at the start of August. The comments suggest that those financial ructions won’t deter authorities from considering more increases in the future even if the next move isn’t imminent.

The yen extended its gains against the dollar as the central bank chief spoke, touching the 145.60 mark just after 10:45 a.m. in Tokyo.

“We will watch financial markets with an extremely high sense of urgency for the time being,” he said.

While the BOJ is widely expected to stand pat on policy when the board meets in September, many economists expect the bank to increase borrowing costs again by December, according to a survey conducted earlier this month.

Ueda pledged to carefully communicate the bank’s thinking to ensure market participants aren’t taken by surprise.

The BOJ has come under criticism from observers who said the July 31 hike and Ueda’s post-decision pledge to continue raising rates if conditions allow were key factors that triggered a massive selloff in global financial markets days later.

At the July meeting, the BOJ raised its benchmark rate to 0.25% from a range of 0% to 0.1%, its second increase this year.

The following week, Shinichi Uchida, deputy governor, attempted to restore calm by saying the BOJ wouldn’t raise rates at times when financial markets are unstable.

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