Bank of Japan Walks Back Talk of Rate Increases After Roiling Markets
Nikkei surges as deputy governor says central bank won’t tighten when markets are unstable
TOKYO—A week after Japan’s top central banker shook up global markets with comments about raising interest rates, one of his deputies walked them back Wednesday and promised not to raise rates when markets are unstable.
The pledge by Bank of Japan Deputy Gov. Shinichi Uchida led to a sharp recovery in Tokyo stock prices and a fall in the yen. That moved markets closer to where they were before the July 31 news conference by Gov. Kazuo Ueda, in which he suggested he wanted to keep raising rates despite lackluster consumer spending in Japan.
In a speech to business leaders in northern Japan, Uchida said Japan wasn’t in the position of the U.S. and Europe several years ago, when surging inflation led central bankers to push rates up rapidly.
“Therefore, the bank will not raise its policy interest rate when financial and capital markets are unstable,” Uchida said.
The Nikkei Stock Average rose 2.3% to 35464.61 at Wednesday’s morning close after starting the morning down by a similar percentage. The yen weakened to around 147 to the dollar compared with 144.50 earlier in the morning. The yen stood around a three-decade low of 162 in early July.
The Bank of Japan lifted its policy interest rate to 0.25% on July 31. Combined with Ueda’s hawkish comments and the prospect of Federal Reserve rate cuts soon, the move pushed up the yen sharply.
That in turn pushed down Japanese stocks, and the Nikkei on Monday suffered its biggest single-day percentage loss since 1987. Global stock markets including the U.S. followed suit.
Recent developments in the markets have been “extremely volatile,” said Uchida, a career central banker who is seen as the key player in setting the Bank of Japan’s monetary policy.
“The bank is monitoring developments in these markets and their impact on economic activity and prices with utmost vigilance,” Uchida said, adding that stock prices and currency rates needed watching because they could affect corporate investment and inflation.
He stressed the dovish side of the Bank of Japan’s current policy, observing that the policy rate of 0.25% is especially low in real terms after accounting for inflation. “The bank will therefore continue to support the economy by maintaining highly accommodative financial conditions,” he said.