(Bloomberg) -- Bank of Japan Governor Kazuo Ueda sent dovish signals regarding the policy outlook in his first speech since incoming Prime Minister Shigeru Ishiba and a close ally urged monetary authorities to use caution when pondering rate hikes.
“Starting with the US economy, the outlook of the global economy is uncertain and financial markets remain unstable,” Ueda said in a speech at a conference in Tokyo Wednesday. “We will watch these developments with an extremely high sense of urgency for the time being.”
Ueda’s remarks indicate that the central bank is looking in the same direction as the newly installed government after Ishiba and one of his cabinet ministers clearly signaled they oppose any early rate moves. While Ueda’s comments mostly tracked the policy statement from the September board meeting, some phrases were added to convey continued cautiousness.
“We will need to carefully examine how these developments will affect the outlook for Japan’s economy and prices, risks surrounding them, and the likelihood of realizing the outlook,” Ueda said, referring to trends in the global economy and financial markets.
His remarks will likely strengthen expectations among BOJ watchers that the bank will hold borrowing costs steady when it next sets policy at a meeting ending on Oct. 31.
Ishiba was voted prime minister by parliament on Tuesday after winning his party’s leadership election last week. The new premier indicated he isn’t seeking a rate hike anytime soon by saying he looks forward to the BOJ “keeping its current stance” to help vanquish deflation.
That message was amplified by Ryosei Akazawa, the minister for economic revitalization in Ishiba’s new cabinet, who said Wednesday that any perception of Ishiba favoring a rate hike isn’t necessarily accurate.
“The comments by Ishiba and Akazawa are clearly against an early rate hike,” SMBC Nikko Securities economists led by Yoshimasa Maruyama wrote in a note Wednesday. “Raising the rate at the end of this month is now out of the question.”
Ueda begins a new chapter of his governorship after Ishiba’s predecessor Fumio Kishida hand-picked him to lead the bank last year and thereafter consistently supported his decisions. Traders are watching to see how well Ueda works together with Ishiba, as politics have widely been seen to influence BOJ policies in the past.
Akazawa also urged caution about rate increases on Tuesday, just after he was named to the cabinet.
“I want them to judge cautiously, and there should be absolutely no action to be taken to cool the economy for a while,” Akazawa told reporters when asked about his opinion on the possibility of a rate hike.
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