🤯 Have you seen our AI stock pickers’ 2024 results? 84.62%! Grab November’s list now.Pick Stocks with AI

BOJ keeps rates steady, upgrades view on consumption

Published 09/19/2024, 05:06 PM
Updated 09/20/2024, 03:11 AM
© Reuters. FILE PHOTO: The Japanese national flag waves at the Bank of Japan building in Tokyo, Japan March 18, 2024. REUTERS/Kim Kyung-Hoon/File Photo
USD/JPY
-

By Leika Kihara

TOKYO (Reuters) -The Bank of Japan kept interest rates steady on Friday and revised up its assessment on consumption, signalling its confidence a solid economic recovery would allow the central bank to raise interest rates again in coming months.

As widely expected, the BOJ held short-term interest rates steady at 0.25% at its two-day meeting but noted improving domestic conditions, which help shore up the case to continue unwinding years of extraordinary monetary stimulus.

"Private consumption has been on a moderate increasing trend despite the impact of price rises and other factors," the BOJ said in a statement announcing the decision.

The assessment was more optimistic than the previous view that consumption was resilient.

"Our decision on monetary policy will depend on economic, price and financial developments at the time," BOJ Governor Kazuo Ueda said at a press conference after the meeting.

"Japan's real interest rates remain extremely low. If our economic and price forecasts are achieved, we will raise interest rates and adjust the degree of monetary support accordingly."

The BOJ ended negative interest rates in March and hiked short-term rates to 0.25% in July, in a landmark shift away from a decade-long stimulus programme aimed at firing up inflation.

The yen pared losses and the Nikkei average saw gains shrink after the announcement, as the BOJ's upbeat view on the outlook kept alive market expectations of a near-term rate hike.

"The upgrade in the BOJ's consumption assessment shows it is becoming increasingly convinced that things are on track, with rising wages pushing up household income and spending," said Naomi Muguruma, chief bond strategist at Mitsubishi UFJ (NYSE:MUFG) Morgan Stanley Securities.

"If upcoming data further underscores the BOJ's optimism, we'll likely see another rate hike in December," she said.

INFLATION ACCELERATES

Ueda has stressed the BOJ's readiness to raise rates further if inflation remains on track to durably hit its 2% target, as the board currently projects.

His hawkish comments contrast with the postures of many other central banks, which are shifting to rate-cut cycles. The U.S. Federal Reserve delivered an oversized reduction in borrowing costs on Wednesday.

A majority of economists polled by Reuters expect the BOJ to raise rates again this year, with most betting on a December hike. None in the poll projected a rate increase this month.

Core consumer inflation hit 2.8% in August to accelerate for the fourth straight month, data showed on Friday, keeping alive expectations for further rate hikes.

The chance to check data against its projections more carefully would come at the BOJ's Oct. 30-31 meeting, when the board will conduct a quarterly review of its forecasts.

Japan's economy expanded an annualised 2.9% in April-June and real wages rose for two straight months in July, easing fears that rising living costs will dent consumption.

But soft demand in China, slowing U.S. growth and the yen's recent rebound cloud the outlook for the export-reliant country.

© Reuters. FILE PHOTO: The Japanese national flag waves at the Bank of Japan building in Tokyo, Japan March 18, 2024. REUTERS/Kim Kyung-Hoon/File Photo

Market volatility remains a key concern for BOJ policymakers after the July rate hike and hawkish remarks from Ueda triggered a spike in the yen and sharp falls in equity prices.

Several BOJ policymakers have called for scrutinising market moves in setting policy. But they also reiterated the bank's readiness to keep raising rates, with one hawkish board member saying short-term rates must eventually go up to around 1%.

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.