BOJ Governor Sticks to Stance on More Rate Hikes Despite U.S. Uncertainty
The central bank said it would closely monitor economic measures by President-elect Donald Trump
NAGOYA, Japan—The Bank of Japan’s governor affirmed that the door remains open to more rate hikes, saying they could come before clarity emerges on U.S. economic policy, even as he carefully avoided giving any clear hints on the timing of the central bank’s next move.
“There are countless uncertain and changing factors, including the U.S. economy. Rather than waiting for clarity on all of them, we will make appropriate policy decisions, looking at data and other information available by each policy meeting,” Kazuo Ueda said at a news conference Monday after speaking to business leaders in Nagoya, central Japan.
While the BOJ head said the bank would closely monitor economic measures by President-elect Donald Trump, he refrained from offering his views on their potential impact on the global economy.
Since Trump was elected as the next U.S. leader earlier this month, speculation over his policy, such as additional tariffs on foreign-made goods, has shaken the financial markets.
The dollar has strengthened on expectations that higher tariffs could accelerate inflation by increasing prices of goods imported into the U.S, sending the yen to its weakest point in nearly four months.
Given the yen’s sharp weakening, some economists expect the BOJ to raise interest rates as soon as at its next policy-setting meeting on Dec. 18-19. A weak yen raises inflationary pressures as Japan depends largely on imports of food and energy.
A local business leader attending the meeting with the BOJ governor on Monday asked the central bank to consider the stability of the currency market when making policy decisions because the yen’s depreciation has had negative effects on companies by raising the cost of importing raw materials and energy.
Stabilizing foreign-exchange rates is not a direct mandate of the Japanese central bank. But Ueda said the bank would closely examine how the yen’s weakness will affect the bank’s price outlook.
Higher costs for Japanese firms could be especially concerning if they are unable to pass those costs on to consumers. Many companies in the country have so far been reluctant to sharply raise prices but there are some signs that this is starting to change.
In his morning speech, Ueda reaffirmed the bank’s stance of continuing to raise interest rates as long as the economy improves as expected.
“The actual timing of the adjustments will continue to depend on developments in economic activity and prices as well as financial conditions going forward,” Ueda said.
“Gradually adjusting the degree of accommodation in line with improvement in economic activity and prices will support long-term economic growth and contribute to achieving the price stability target in a sustainable and stable manner,” he added.
The governor said that whether overseas economies grow moderately and whether wages in Japan continue to rise hold the key to the bank’s economic outlook.
Although Ueda didn’t give a strong hint that a December rate increase is coming, he emphasized the need for gradual monetary tightening.
Given that real interest rates remain very low, he sees a risk that underlying inflation rate could at some point exceed the central bank’s 2% target.
“If that happens, we may have to raise interest rates at a faster-than-expected pace. We will appropriately adjust the degree of monetary easing to avoid such a situation,” Ueda said.