(Bloomberg) -- Governor Kazuo Ueda reinforced his message that while the Bank of Japan will raise its key interest rate again if data allow, authorities won’t be in a hurry to do so, in remarks that indicate little chance of a move at next month’s meeting.
“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,” Ueda said Tuesday in a speech in Osaka, western Japan. “We have enough time to do so.”
The latest comments come after Ueda sent a similar message last Friday, when the board voted unanimously to keep the rate on hold. In his remarks Tuesday, Ueda acknowledged criticism of the bank’s communications that preceded the July 31 rate hike. Against that backdrop, the measured tone of Ueda’s latest remarks will likely cement views among BOJ watchers that the board will hold when its next meeting concludes on Oct. 31.
“Ueda seems trying to be more careful and clear in communications after the BOJ was heavily criticized for a lack of it toward a July hike,” said Eiji Kitada, an economist at Hamagin Research Institute. “He is saying a rate hike will come, but not so soon.”
In his post-decision remarks last week, Ueda offered dovish hints about the price outlook, saying, “the upside risk to prices does appear to be easing given the recent yen strength.”
The yen has gained significantly over the past two months after reaching a 38-year low against the dollar, supported by speculation that interest rate differentials between the US and Japan will narrow. The Federal Reserve gave that narrative a boost when it kicked off its easing cycle last week. Ueda cited the yen’s correction as a key factor bringing down upside price risks.
Ueda’s speech comes days before the ruling Liberal Democratic Party elects a new leader on Friday, in a poll that will essentially determine who succeeds Prime Minister Fumio Kishida as the nation’s premier. While local media have reported the outcome is too close to call, BOJ watchers are keeping a close eye on whether Sanae Takaichi, a strong advocate of monetary easing, will secure a victory.
Takaichi, one of three leading contenders, said Monday that a rate hike now would be “stupid,” as the nation needs loose monetary policy to secure the end of deflation. Shinjiro Koizumi, another strong candidate, said Monday that he’ll order the compilation of an economic package immediately if he takes the helm.
Speaking to reporters after the speech, Ueda declined to comment on how he might respond if a new government opposed a rate hike, noting merely that the bank will continue close communications with the government whoever becomes leader.
“The BOJ is independent by law but it may make it harder if the government opposes a rate hike,” Kitada at Hamagin Research Institute said.
Many economists expect the bank to wait until December or January before it takes the benchmark rate higher again after having raised rates twice already this year.
“If the outlook for economic activity and prices presented in the outlook report is realized, the bank will accordingly raise the policy interest rate,” Ueda said, referring to a quarterly economic report that shows inflation meeting its price target from around late next year.
He said it would be appropriate for the policy rate to be neutral if consumer price trends are around 2%. A neutral rate is a level that’s neither stimulative nor restrictive for economic activity.
(Updates with Ueda comments from afternoon press conference, economist’s remarks)
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