By Leika Kihara
WASHINGTON- The Bank of Japan is set to maintain ultra-low interest rates next week, and probably signal a less dovish policy outlook due to receding fears of US recession – and the need to keep speculators from pushing down the yen too much.
Since ending a decade-long, radical stimulus program in March, the BOJ has signaled its intention to keep raising interest rates from rock-bottom levels. But it was forced to water down the hawkish message and pledge to move slowly, or even pause, in raising rates after a hike in July was blamed for triggering a rout in markets.
While the BOJ appears in no rush to hike rates, any tilt back towards a less dovish stance would underscore its desire to leave itself wiggle room on the timing of the next move, analysts say.
It may also help prevent the yen, which has renewed its decline recently, from testing further lows and hurting already weak consumption by pushing up fuel and food import costs.
“As the yen is falling again, the BOJ will probably try to avoid sending a message that would appear too dovish,” said Ryutaro Kono, chief Japan economist at BNP Paribas.
At the two-day meeting ending on Oct. 31, the BOJ is widely expected to keep short-term interest rates steady at 0.25 percent.
In a quarterly report to be released after the meeting, the board is also seen making no major changes to its projection that inflation will move around 2 percent through early 2027.
Recent domestic data have mostly backed up the BOJ’s view that rising pay and prospects of sustained wage gains are underpinning consumption, and prodding more firms to raise prices not just for goods but services.
An intensifying labor shortage is also heightening expectations that companies will continue to hike pay next year, say three sources familiar with the BOJ’s thinking.
“Japan’s economy is on track for a recovery,” one of the sources said. “Prices will likely keep rising as many companies have yet to fully pass on rising costs,” another source said.
The BOJ may reflect such progress made on the wage and price front in the report, which would underscore its conviction that the prerequisite for more rate hikes is falling into place. – Reuters
