TOKYO- The Bank of Japan kept interest rates steady and its governor said it could afford to spend time eyeing the fallout from global economic uncertainties, signaling it was in no rush to raise borrowing costs further.
The dovish comments pushed down the yen, heightening uncertainty over whether the BOJ could hike interest rates again this year, as many market players had predicted.
BOJ Governor Kazuo Ueda said Japan’s economy was moving in line with forecasts, with rising wages lifting consumption, and keeping inflation on track to durably hit the bank’s 2 percent target.
But volatile financial markets and uncertainty over whether the US economy can manage a soft landing required the BOJ to spend more time determining whether more rate hikes were needed, he said.
“The outlook for overseas economic development is highly uncertain. Markets remain unstable. We need to scrutinize such developments carefully for the time being,” Ueda told a news conference after the BOJ’s widely expected decision to keep short-term rates steady at 0.25 percent.
The yen’s recent rebound has also moderated upward pressure on import costs, and diminished the risk of an overshoot in domestic inflation, he said. “As such, we can afford to spend some time in making a policy decision.”
The dollar jumped above 143 yen after Ueda’s remarks on relief he did not give strong clues on the chance of a near-term rate hike.
“The governor stressed risks surrounding the US economy and re-confirmed the view the BOJ won’t hike rates when markets are unstable. That may have led to receding market expectations of a year-end rate hike,” said Atsushi Takeda, chief economist at Itochu Research Institute.
“But such risks may clear up. I believe there’s still a chance the BOJ could hike rates in December,” he said.
