Sept 18 (Reuters) – The Bank of Japan raised interest rates to a 31-year high on Friday and signalled its readiness to keep pushing up borrowing costs, joining other major central banks in fighting persistent inflation pressures driven by soaring oil costs.
But the widely expected move failed to prop up the yen, which instead fell as investors focused on a lack of explicitly hawkish guidance and two dovish dissenters who argued for patience in pushing up borrowing costs.
Following are excerpts from Governor Kazuo Ueda’s comments at his post-meeting news conference, which was conducted in Japanese, as translated by Reuters:
ON 50-BP OR BACK-TO-BACK RATE HIKES:
“That depends on how price conditions develop. There could be various possibilities. We shouldn’t rule anything out.”
“If we were to do big rate hikes or consecutive rate hikes, that would depend on whether Japan sees very big inflation risks, or sees inflation sharply overshooting our target. Good examples would be what the US and European central banks did … Underlying inflation hasn’t exceeded 2% yet, and we want to keep it that way. That’s why we’d like to act pre-emptively. That way, we can avoid being forced to raise rates sharply and cause unintended consequences to the economy.”
“We’re in a phase where we need to look at various data carefully. But that doesn’t mean we can move slowly.”
INFLATION:
“Up till now, our short-term policy focus was to push up underlying inflation from levels below 2% … If risks of underlying inflation overshooting 2% materialise, that could have a negative impact on Japan’s economy.”
“… Underlying inflation is now quite close to 2%, and our goal has become to have this stabilise. But this phase has just started. We’ll seek to quantify (the impact of rate hikes) at our next quarterly report in October.”
“It will take time to determine whether underlying inflation has stabilised. But that’s not to say we will wait until we have a clue. We will be mindful of the fact that Japan is seeing upside price risks, as well as financial conditions, in determining the pace and degree of future rate hikes.”
“We’ve also seen rises in medium- and long-term inflation expectations. Recent wage data have also been quite strong, suggesting that wage pressures are broadening.”
“If the renewed rise in energy costs persists, that could add further pressure to wholesale inflation and then consumer inflation.”
CENTRAL BANKS’ ACTIONS:
“The policy actions of other central banks could have various channels, including through currency moves, and affect Japan’s economy.”
“The central banks (BOJ, ECB, Fed raising rates nearly simultaneously) all seem to be responding to similar factors. For one, it’s inflationary pressure from the Middle East conflict. Another is strong expenditure on AI, which is putting mild inflationary pressure and driving economic growth.”
CURRENCY MOVES:
“We guide policy looking at how currency market volatility could affect domestic inflation. We don’t guide policy to control currency moves or stabilise currency rates at a certain range.”
FINANCIAL CONDITIONS:
“Financial conditions are becoming less accommodative as we raise rates … It’s important to avoid financial conditions from tightening too much, or to cause a big adjustment in asset prices, by raising rates too sharply.”
NEUTRAL RATE UNCERTAIN:
“It is hard to pinpoint where the neutral rate is, and therefore the terminal rate. It might be the case that as we adjust policy as appropriate, we will know where those rates sit ex-ante.”
(Reporting by Leika Kihara; Editing by Harikrishnan Nair)
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