Tokio. The Bank of Japan (BoJ) kept interest rates steady on Friday and revised up its assessment of consumer spending, expressing confidence that a solid economic recovery will allow the central bank to raise interest rates again in the coming months.
As expected, the Bank of Japan held short-term interest rates at 0.25 percent at a two-day meeting that ended Friday. “Private consumption has followed a moderate upward trend despite the impact of price increases and other factors,” the Bank of Japan said in a statement announcing its decision.
The assessment was more optimistic than the previous view that consumption was resilient.
The yen pared losses and the Nikkei pared gains after the announcement as the BoJ’s upbeat view on the outlook kept market expectations of a near-term rate hike alive.
“The BoJ’s improved assessment of consumption shows it is increasingly convinced that things are on the right track as rising wages boost household incomes and spending,” said Naomi Muguruma, chief bond strategist at Mitsubishi UFJ Morgan Stanley Securities. “If upcoming data confirms the BoJ’s optimism, we are likely to see another rate hike in December,” she added.
Inflation accelerates
The Bank of Japan ended negative interest rates in March and raised short-term rates to 0.25 percent in July, in an unprecedented reversal of a decade-long stimulus program aimed at boosting inflation.
Ueda stressed that the Bank of Japan is prepared to continue raising rates if inflation remains on track to sustain its 2 percent target, as currently envisaged by the Board.
On Wednesday, the U.S. Federal Reserve cut its benchmark rate by half a point to a range of 4.75 to 5.0 percent. Most economists surveyed by the Federal Reserve said the rate would remain stable. Reuters expect the Bank of Japan to raise rates again this year, with most betting on a hike in December.
The opportunity to compare the data with its forecasts more closely will come at the Bank of Japan’s Oct. 30-31 meeting, when the board will conduct a quarterly review of its forecasts.
The yen weakens
The yen weakened on Friday after the Bank of Japan signaled it was in no rush to raise interest rates again, having held them steady at 0.25 percent as expected.
In Japanese trading, the dollar rose 1.2 percent to 144.32 yen, hitting its highest level in just over two weeks, as Governor Kazuo Ueda said the BoJ could afford to take time to observe the fallout from global economic uncertainties.
“Our monetary policy decision will depend on current economic, price and financial developments. Japan’s real interest rates remain extremely low. If our economic and price forecasts are met, we will raise interest rates and adjust the degree of monetary support accordingly,” Ueda said at a press conference after the meeting.
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– 2024-09-26 12:07:42
