BOJ still on track for more rate hikes after standing pat
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(Bloomberg) — The Bank of Japan kept its benchmark interest rate unchanged while sticking to its view that it’s on track to achieve its inflation target, an outlook that points to the possibility of another rate hike in the coming months.
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The yen (JPYUSD=X) climbed after Governor Kazuo Ueda said at a news conference that currency movements are having a major impact on the economy and on price trends. He and his fellow board members maintained the unsecured overnight call rate at around 0.25%, according to its statement Thursday.
The result was expected by all but one of 53 economists surveyed by Bloomberg, given the wide range of uncertainties for the economy including the outcome of the US presidential election.
In its statement the central bank said it needed to pay attention to the course of overseas economies and the US economy in particular. The US presidential vote looms large next week, leaving investors on guard for potential volatility in markets.
Still, the central bank maintained the logic that it remains on track for further rate hikes, despite adjusting some of its forecasts and lowering its assessment for upward risks for the current fiscal year. That leaves investors, businesses and economists wondering if the next move will come in December or January.
The yen gained as much as 0.9% against the dollar to 152.06 after the Ueda comments. Japanese shares dropped slightly amid concern the rising yen will hurt exporters, with the Topix index falling 0.3%. The benchmark 10-year bond yield dropped 1.5 basis points to 0.935%.
“The BOJ is saying that overall it is on track to continue with normalization,” said Toru Suehiro, chief economist at Daiwa Securities. While political uncertainty also rises at home, “I personally don’t think that instability will keep the BOJ from raising the rate.”
In addition to the battle between Vice President Kamala Harris and former President Donald Trump for leadership of the US, political uncertainty at home is another factor that may have prompted caution at the BOJ for the time being.
Election Disaster
The ruling Liberal Democratic Party suffered its worst election result in 15 years at the weekend, an outcome that potentially saps its power to push through economic measures and nimbly coordinate with the BOJ.