In remarks made ahead of the Bank of Japan’s December meeting, Governor Kazuo Ueda did not suggest any clear inclination towards adjusting interest rates.
The governor suggested in the last major speech that the central bank’s stance is tied closely to economic factors and prices, keeping the door open for another rate hike amid changing conditions.
His somewhat dovish speech promoted a 0.5% drop in the yen to 155.14 against the dollar and a slight dip in benchmark bond yields, as market participants had anticipated a more aggressive tone. Swaps indexed overnight continue to predict about a 54% probability of a December rate increase.
Following the market volatility caused by the Bank of Japan’s rate hike in July, the central bank has conceded the necessity for improved transparency in its communications. This has triggered assumptions that Governor Ueda will provide clearer signals regarding the bank’s future actions.
Ueda’s silence on a potential rate increase at the forthcoming December meeting risks further selling of the yen. However, he maintained that subject to the realization of the bank’s economic activity and price outlooks, the policy rate will continue to rise.
Ueda highlighted the importance for the bank to carefully monitor a variety of risks, particularly those associated with the US economy and their potential repercussions. Meanwhile, he expressed optimism regarding a soft landing for the US economy due to recent favorable data.
Subsequent to the previous month’s policy meeting, Ueda stressed that there is no longer a need to deliberate extensively before implementing policy changes, citing diminished risks stemming from the US economy.
The governor noted that gradually adjusting the level of accommodation alongside enhancements in economic performance and prices will bolster long-term economic expansion and aid in achieving the price stability objective in a dependable and sustainable manner.
