BOJ’s Ueda Flags Global Risks As October Rate Decision Looms
Bank of Japan Governor Kazuo Ueda said on Friday that inflation was on track to durably reach the central bank’s 2 per cent target, but warned that global uncertainties could weigh on corporate wage-setting decisions, leaving room to manoeuvre on whether to raise interest rates later this month.
Speaking in Osaka to business leaders, Ueda said there were risks surrounding Japan’s economic outlook, citing labour market weakness in the United States and the expected impact of higher US tariffs on Japanese corporate profits.
“If uncertainty regarding overseas economies and trade policies remains high, firms may place stronger emphasis on cost-cutting and may weaken their efforts to reflect price increases in wages,” Ueda said.
Markets had been awaiting clues on the central bank’s next move after its hawkish split in September. A dovish policymaker has also publicly called for an earlier hike, with investors now pricing a more than 60 per cent chance the BOJ will raise rates to 0.75 per cent from 0.5 per cent at its policy meeting on 29-30 October.
The yen slipped 0.2 per cent to 147.60 per US dollar after Ueda’s comments, as traders interpreted them as tempering expectations of a near-term rate increase.
Ueda reiterated the bank’s readiness to continue raising rates if the economy and prices evolve as forecast. “The future course of the US economy and the conduct of monetary policy could significantly affect Japan’s economy and prices,” he said. “We will therefore continue to closely monitor the situation.”
Japan’s economy, he noted, was so far weathering the shock from tariffs thanks to buffers from past high profits. He added that underlying inflation was likely to accelerate toward the BOJ’s target, removing earlier language suggesting it would temporarily stall. “Depending on firms’ wage- and price-setting behaviour, it’s possible that price rises will persist longer than expected,” he said, while warning that prolonged increases in food costs could erode consumption and dampen inflation.
“We will carefully examine the likelihood of our baseline scenario materialising, as well as both upside and downside risks,” Ueda said.
His remarks followed Wednesday’s tankan survey showing confidence among large manufacturers had improved for a second straight quarter. The BOJ last year ended its decade-long stimulus programme and in January raised rates to 0.5 per cent, its first hike in years, while pledging to tread cautiously to ensure inflation is underpinned by wages and domestic demand.
Reuters
