(Reuters) -The Bank of Japan kept interest rates steady on Tuesday and decided to decelerate the pace of its balance sheet drawdown next year, signalling its preference to move cautiously in removing remnants of its massive, decade-long stimulus.
In a widely expected move, the BOJ maintained short-term interest rates at 0.5% by a unanimous vote at its two-day policy meeting that ended on Tuesday.
Following are excerpts from BOJ Governor Kazuo Ueda’s comments at his post-meeting news conference, which was conducted in Japanese, as translated by Reuters: ON LIKELIHOOD OF NEAR-TERM INTEREST RATE HIKE “I won’t comment on the likelihood of near-term interest rate hike. But I would say we would like to look at hard data that will be coming out. We would also like to see whether currently elevated headline inflation will moderate, or whether it could affect underlying inflation. It will be a comprehensive decision based on various other data, too.” ON UNCERTAINTY AND THE TIMING OF THE NEXT RATE HIKE”Given very high uncertainty, it’s become even more important than in the past to look at a wide range of information in setting policy … While an increasing number of sentiment surveys are worsening, hard data remain firm. As for the timing (of the next rate hike), it depends on how convinced we become (on the chance of durably achieving 2% inflation).” ON POTENTIAL IMPACT OF EXPECTED FISCAL AID TO HOUSEHOLDS
“Rather than push up inflation, such spending is likely to cushion the blow from rising prices on consumption and could help achieve long-lasting growth in consumption. On the other hand, the impact of U.S. tariffs could intensify in the latter half of this year.” ON RISK OF BOJ BEING BEHIND THE CURVE BY DELAYING RATE HIKES”I don’t think we are facing such a situation. Underlying inflation is accelerating but yet to achieve 2%, and isn’t racing higher. But we cannot rule out the risk of elevated headline inflation affecting underlying inflation via rises in inflation expectations.” IMPACT OF TRADE TENSIONS ON CORPORATE BONUSES AND WAGE TALKS
“The fallout from trade uncertainty could weigh on companies’ winter bonus payments and wage negotiations (with unions) next year. It’s tough to say when we can gauge the impact. We might have to await actual data or, in some cases, could be able to estimate (the wage outlook) through corporate earnings.”
ON MIDDLE EAST TENSION, OIL, AND THE BOJ’S INFLATION VIEW
“Coupled with already rising food prices, such moves in oil prices caused by tensions in Iran and Israel, if persist, could risk affecting inflation expectations and underlying inflation. So we must scrutinise developments carefully.”
POTENTIAL IMPACT OF TRADE TENSIONS “On the other hand, the impact of trade tensions could start to appear mainly through reductions in manufacturers’ profits. That could prod firms to resume cost-cutting style price behaviour. Such a risk cannot be neglected. As such, we need to be vigilant to both type of risks.”
ON HOW U.S. TRADE POLICY CLOUDS THE ECONOMIC OUTLOOK
“Even if developments surrounding U.S. trade policy stabilise toward a certain direction, there’s very high uncertainty on how that could affect the economy.”
BOJ ON SLOWING TAPER PACE FROM FISCAL 2026
“It’s desirable to continue tapering to allow yields to move more freely reflecting market forces. But tapering too rapidly could cause unintended impact on market stability.”
RISKS OF PRICE OUTLOOK
“When we look at recent data, consumer inflation is moving around 3%. But this is mostly due to rising import costs and rice prices … we expect such pressures to dissipate. Having said that, there are both upside and downside risks to the price outlook. We need to be mindful that cost-push pressure could affect households’ mindset and inflation expectations, thereby influencing underlying inflation.”
UNCERTAINTY OVER TRADE POLICY
“For the time being, there is extremely high uncertainty over each country’s trade policy. As such, there is bigger downside risk for both Japan’s economy and prices.”
(Reporting by Leika Kihara; Editing by Sherry Jacob-Phillips)
Comments