BOJ Governor Strikes Cautious Note Over Global Economic Outlook — Update

By Megumi Fujikawa

TOKYO--Bank of Japan Gov. Kazuo Ueda struck a cautious note about the global economic outlook, causing the yen to weaken sharply.

"With the outlook becoming increasingly uncertain, we would like to take some more time to see how the outlook settles," Ueda said at a news conference on Friday.

The BOJ governor said his main scenario is still for a soft landing for the U.S., but risks surrounding that view have risen recently due to economic indicators pointing to a slowdown

Following Ueda's remarks, the yen weakened to nearly 143.90 to the dollar after strengthening to around 141.70 earlier Friday. The yield on 10-year Japanese government bonds fell 2.0 basis points to 0.830%.

Earlier in the day, the BOJ, as widely expected, left its short-term policy rate unchanged at 0.25% after raising it to that level in July.

Ueda said Friday that the bank would continue to raise interest rates if the economy and prices are in line with the BOJ's projections, though there are some economic uncertainties outside Japan.

Over the past month, the BOJ's pledge to pursue more rate increases, alongside concerns over the outlook for the U.S. economy, caused wild swings in the markets. The Nikkei Stock Average suffered its worst day since 1987 in early August.

The yen has been volatile against the dollar on speculation over the Federal Reserve's rate cuts. On Wednesday, the Fed cut interest rates by a half-percentage point, marking its first reduction since 2020.

Despite weakening late Friday, the yen is still firmer than the three-decade low of 162.00 against the dollar marked in early July. Ueda said the yen's strengthening has eased upward pressure on import prices and given the BOJ some room to consider further action more carefully.

In considering another rate hike, Ueda said the bank would closely examine how improvements in wages and private spending may be passed on to service prices.

The BOJ upgraded its view on private consumption in its September statement, saying it "has been on a moderate increasing trend." The bank previously said private spending had been "resilient."

"Higher real wages are starting to support consumption activities," said Norihiro Yamaguchi, an economist at Oxford Economics. He said robust corporate earnings would likely support wage negotiations next year.

Inflation-adjusted wages have recently started rising after more than two years of declines.

Government data released earlier Friday showed that consumer inflation picked up in August. Service prices excluding imputed rent also rose at a slightly higher pace, the data showed.

Write to Megumi Fujikawa at megumi.fujikawa@wsj.com

(END) Dow Jones Newswires

September 20, 2024 05:47 ET (09:47 GMT)

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