Interest Rate Maintained at 0.25%
"Japanese Economy Recovering Gradually"
Kazuo Ueda, Governor of the Bank of Japan (BOJ), stated that if the BOJ's outlook is realized, "we will continue to raise the policy interest rate and adjust the degree of monetary easing."
According to the Nihon Keizai Shimbun (Nikkei) and NHK on the 20th, Governor Ueda said at a press conference following the Monetary Policy Meeting, "Monetary policy decisions will vary depending on the economy, prices, and financial conditions. Japan's real interest rate remains very low," expressing this view.
On this day, the BOJ unanimously decided to keep the benchmark interest rate at 0.25%, but left room for additional rate hikes within a few months. Regarding the possibility of a rate increase within the year, he said, "Japanese economic data is progressing as expected," but added, "However, uncertainties in the global economy centered on the U.S. economy and movements in financial capital markets are creating uncertainties for the outlook."
The background for the rate freeze appears to be market instability. At the previous meeting in July, the BOJ raised the interest rate from 0?0.1% to 0.25% in response to yen depreciation and other factors. However, after the rate hike, large-scale unwinding of yen carry trades and concerns about a U.S. economic downturn emerged, causing global stock markets to plunge. Experts had predicted that the BOJ would freeze rates this month while monitoring financial market trends.
Earlier, the U.S. Federal Reserve (Fed) cut interest rates by 0.5 percentage points. Regarding this, Governor Ueda said, "It is difficult to say how long it will take to determine whether the market has stabilized," and added, "We want to carefully evaluate whether the U.S. soft landing scenario will be realized or if stricter adjustments will continue." Since the U.S. lowered rates for the first time in four years and implemented a big cut (0.5 percentage point rate cut), the BOJ plans to carefully examine the impact of the U.S. situation on Japan.
He also stated, "We will carefully examine how these risks will affect our outlook and the possibility of achieving the price stability target."
Regarding the Japanese economy, Governor Ueda evaluated, "Although some weakening movements are seen, it is recovering moderately," and added, "I believe growth will continue to exceed the potential growth rate." He also said, "The Japanese economy is moving as expected. There is sufficient basis to strengthen the judgment of the underlying (price) rise rate, but movements in the overseas economy, especially the U.S. economy, are increasing future uncertainties."
Consumer prices are "expected to rise gradually," and he said, "In the latter part of the forecast period in the Economic and Price Outlook Report, prices are expected to move at a level generally consistent with the price stability target."
Regarding the exchange rate, Governor Ueda said, "Since the beginning of the year, the price rise risk due to yen depreciation has considerably decreased." Around 5:20 p.m. on the day, the dollar-yen exchange rate was moving around 143.55 yen.
On corporate wage increases, he said, "We expect wage increases to continue," and added, "We judge that firm wage increases will continue in next year's spring labor negotiations (Chuntu)."
When asked about the impact of the Liberal Democratic Party leadership election scheduled for the 27th on monetary policy operations, he firmly declined to comment, saying, "I would like to refrain from individual comments on each candidate's monetary policy."
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