BOJ Governor's Cautious Comments Damp Speculation of October Hike — Update

By Megumi Fujikawa

OSAKA, Japan--Bank of Japan Gov. Kazuo Ueda reiterated his cautious tone on Tuesday and said the central bank can wait to act until economic uncertainties become clearer, dampening speculation over another rate increase in October.

"In making policy decisions, the bank will need to carefully assess factors such as developments in financial and capital markets at home and abroad and the situation in overseas economies underlying these developments. We have enough time to do so," Ueda said in a speech to business leaders in Osaka.

The BOJ governor said the risk of higher import prices has lessened because of corrections to the yen's excessive weakness, suggesting that the bank doesn't see an imminent need to take action to curb inflation.

The yen has regained some ground against the dollar recently amid expectations for a narrowing interest-rate gap between the U.S. and Japan. Higher import prices triggered by a weak yen was one of the reasons behind the BOJ's rate increase in July.

The BOJ kept short-term interest rates unchanged at 0.25% at the end of its latest meeting on Friday. Ueda said then that uncertainties were growing over the U.S. and other overseas economies.

Ueda said Tuesday that there was no change to the bank's basic thinking of pursuing more rate increases if underlying inflation is in line with its outlook.

Still, given the high uncertainty, the bank needs to make policy decisions in a timely manner, rather than based on a preset fixed schedule, he added.

Ueda's cautious comments since last week reduced expectations of a rate hike at the bank's next meeting in October, analysts said. The yen weakened to near 144.70 against the dollar Tuesday afternoon, compared with around 143.50 in early trading.

"The comment that the bank has enough time [to assess risk factors] indicates that the bank's stance is not to make any moves at its October meeting unless the yen weakens again," said Naomi Muguruma, a strategist at Mitsubishi UFJ Morgan Stanley Securities.

Ueda said Japan's underlying inflation was gradually moving toward the bank's 2% target, while wage growth is expected to continue next year and beyond.

"However, it is necessary to carefully examine whether developments in overseas economies and other factors will have an impact on Japan's corporate profits and corporate behavior," Ueda said. "Japan's economy must avoid returning to deflation."

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

(END) Dow Jones Newswires

September 24, 2024 05:02 ET (09:02 GMT)

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