The Zhitong Finance App noticed that Bank of Japan Governor Ueda Kazuo revealed almost no intention and wanted to challenge the market's current bearish bet on the central bank's interest rate hike for the second time this month. He only reiterated the bank's consistent policy position.
“We intend to continue to raise policy interest rates and adjust the extent of monetary easing according to changes in economic activity, prices, and financial conditions,” Kazuo Ueda said in a brief speech in Tokyo on Tuesday.
The central bank governor said, “We will consider the timing and pace of these adjustments when evaluating the risks and the possibility of achieving the economic and price baseline outlook.”
This statement comes at a time when economists generally expect the Bank of Japan to keep its policy unchanged at the end of the next Monetary Policy Committee meeting on October 30. By reaffirming the central bank's policy positions and economic views, Kazuo Ueda hardly dispelled these expectations, while leaving room for interest rate hikes after October.
According to the pricing of overnight index swaps, investors think the probability of interest rate hikes this month is about 12%, down from the 40% level at the beginning of last week. If the December meeting is taken into account, the current probability of interest rate hikes has soared to about 90%.
The governor reiterated the views he expressed after the central bank raised the benchmark interest rate last month, stressing the need to prevent inflation from exceeding the target.
Kazuo Ueda said, “We believe that stabilizing the potential inflation rate at around 2% is becoming increasingly important to ensure that the risk of inflation exceeding the 2% price stabilization target does not become a reality and has an adverse impact on the economy.”
The Bank of Japan raised the benchmark interest rate on September 18, just three months until the June rate hike, setting a record for the shortest interval between rate hikes since 1990. At the press conference after the meeting, Kazuo Ueda said that the central bank's policy phase had switched to focusing on stabilizing price trends rather than pushing the price trend higher to the 2% target as in the past 13 years.
Kazuo Ueda said it is necessary to pay close attention to the Middle East conflict, demand related to artificial intelligence, and the risks posed by exchange rate fluctuations. He added that potential inflation is likely to rise above target.
In a summary of opinions from the September meeting, a government official — probably the minister in charge of economic and fiscal policy Kihara Minoru — said that the government wants the Bank of Japan to carefully evaluate the impact of interest rate hikes implemented so far, which reveals a cautious attitude towards further interest rate hikes.