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 at a phase where we need to look at various data carefully. But that doesn’t mean we can move slowly.”
“As for the pace of future rate hikes, we don’t have any pre-set idea in mind such as once every three months.”
INFLATION:
“Recent Middle East developments could serve as upward pressure on prices … 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. This suggests underlying inflation is strong and converging around 2%.”
“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.”
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.”
RISK FACTORS:
“If the renewed rise in energy costs persists, that could add further pressure to wholesale inflation and then consumer inflation. That’s something we need to look out for.”
“The policy actions of other central banks could have various channels, including through currency moves, and affect Japan’s economy.”
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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