With finance officials from all over the world warning of downside risks amid escalating U.S.-China trade hostilities, Bank of Japan Governor Kazuo Ueda probably departed Washington last week with little confidence that global headwinds will allow the central bank to raise interest rates as soon as this month.
However, if a hawkish-leaning BOJ board wants to act sooner rather than later, he has the right to move forward with a near-term rate hike because to the global economy's resiliency, which the IMF highlighted in its most recent World Economic Outlook last week. Because of this, Ueda left his options open by providing few hints about when a rate hike would occur, which the markets predict would occur by January of next year.
After visiting the G20 financial chiefs' meeting in Washington, Ueda told reporters Thursday, "There's not much of a gap between how I see global and U.S. economies now and how I saw it back in Japan."
He responded, "I would like to keep gathering more information and scrutinize various data that comes out leading up to our October policy meeting," when asked if a rate hike was likely to occur during the October 29–30 session.
After Ueda stated earlier this month that he believed the discussions with bankers and finance officials would yield information that would assist BOJ policymakers in determining whether to raise rates in late October, markets have been paying close attention to his remarks in Washington.
Ueda has frequently warned against prematurely raising borrowing costs, emphasizing the need to assess the U.S. economy's strength and the degree of harm caused by President Donald Trump's tariffs to Japan's export-dependent economy. Ueda probably gained some clarity from the Washington sessions regarding the timeline for clearing the cloud obscuring the world view.
Ueda has frequently warned against prematurely raising borrowing costs, emphasizing the need to assess the U.S. economy's strength and the degree of harm caused by President Donald Trump's tariffs to Japan's export-dependent economy. Ueda probably gained some clarity from the Washington sessions regarding the timeline for clearing the cloud obscuring the world view.
Last week, the IMF revised its prediction for global growth in 2025, but cautioned that a renewed trade war between the United States and China might cause output to drop. Despite characterizing global GDP as robust, IMF member nations expressed apprehension regarding new pressures and threats to the outlook.
Because of the high level of uncertainty around the forecast, a senior IMF official told Reuters that there were downside risks to Japan's economy and encouraged the BOJ to raise rates "very gradually."
Because of the high level of uncertainty around the forecast, a senior IMF official told Reuters that there were downside risks to Japan's economy and encouraged the BOJ to raise rates "very gradually."
While Ueda may have plenty of reasons to put rates on hold, he faces pressure from within his board to move quicker. With inflation above the BOJ's 2% target for three straight years and Japan's economy weathering the hit from U.S. tariffs so far, the central bank's board is gradually leaning toward resuming rate hikes that had been put on hold since it raised its key interest rate to 0.5% in January.
Two of the BOJ's nine board members unsuccessfully proposed raising rates in September on mounting inflationary pressure. Another dovish member then surprised markets by saying the need for a rate hike was increasing "more than ever."
Two of the BOJ's nine board members unsuccessfully proposed raising rates in September on mounting inflationary pressure. Another dovish member then surprised markets by saying the need for a rate hike was increasing "more than ever."
Long term postponement of rate hikes may potentially lead to a fresh decline in the value of the yen, which would raise living expenses by driving up import costs.
According to former BOJ executive Tomoyuki Shimoda, "the next chance would be in December if the BOJ holds off on raising rates in October." "During that time, there's a risk the yen could slide further."
However, Ueda and his staff's general tone indicates that the BOJ will adopt a cautious approach, in part because raising its benchmark rate to 0.75% would raise it to levels not seen in thirty years.
The BOJ won't have much time to get in touch with a new government before its next policy meeting, as the Japanese parliament is expected to vote on a new prime minister on Tuesday.
Sanae Takaichi, the anticipated incoming prime minister, supports loose monetary policy. At a lecture in Washington on Thursday, Assistant Governor Seiichi Shimizu of the BOJ stated, "We don't know how exactly the economy will react" to rate hikes.
Sanae Takaichi, the anticipated incoming prime minister, supports loose monetary policy. At a lecture in Washington on Thursday, Assistant Governor Seiichi Shimizu of the BOJ stated, "We don't know how exactly the economy will react" to rate hikes.
