(Bloomberg) -- Bank of Japan Governor Kazuo Ueda opened up the possibility of waiting longer for his next interest rate hike in comments that lowered expectations of a January move and hammered the yen.
Ueda said more information on Japan’s wages and the policies of US President-elect Donald Trump is needed before the BOJ can decide on a rate hike. His comments, made at a briefing after the central bank stood pat on rates, extended the yen’s losses against the dollar, with the currency breaching the 157 mark, the lowest level since July.
The governor is searching for the right moment for the third rate hike since the bank ended its negative rate policy in March this year, and appears to be guiding the debate toward a decision in either January or March 2025.
Ueda said the overall picture on wages should be clearer by March or April, and it may take time to assess the full impact of Trump’s policies. He also indicated that he doesn’t have to wait until all the information is available.
“It will take a long time before the full picture is clear for both the spring wage negotiations and the Trump administration’s policies,” Ueda said.
The Japanese currency was already weaker after the central bank left its benchmark rate at around 0.25%, an outcome expected by more than half of economists surveyed by Bloomberg.
Ueda’s references to March and April and a lack of clear hints that he would move in January gave traders a cue to jump on expectations of a later hike and a slower pace overall. Japanese bond futures rose on the comments, too.
“Ueda probably didn’t want to tie his hands because of high uncertainties over Trump’s policies,” said Hideo Kumano, executive economist at Dai-Ichi Life Research Institute and a former BOJ official. “His ambiguous communication could be costly as speculators will take it as a green light to weaken the yen.”
Since taking the helm of the central bank, the governor has been looking to normalize monetary policy after years of experimentation, but Friday’s messaging appeared to emphasize the need to judge data more before taking action.
“Of course there’s a risk of getting behind the curve by waiting,” said Ueda, while appearing to try and avoid getting boxed into a move next month with his comments overall. “We have to consider that risk when we make our decisions.”
The BOJ may also have been reluctant to raise rates in December given the potential for bad optics. Prime Minister Shigeru Ishiba’s minority government is currently negotiating with an opposition party wary of early rate hikes to ensure support for next year’s annual budget.
There’s also the memory of perceived missteps in the past. Raising interest rates three times in one calendar year hasn’t happened in Japan since 1989, a tightening cited by economists among the factors that led to the bursting of the nation’s asset bubble.
Still, board member Naoki Tamura voted against the stand-pat decision Thursday, while proposing a rate hike to 0.5%. He said the economy and prices are moving in line with expectations, and there are increasing upside risks for inflation. While he was voted down by the rest of the board, his proposal suggests the board could still choose to hike next month.
The central bank also released the results of its broad policy review Thursday, which looked back on the past quarter century. While noting the benefits of the massive policy experiment conducted under Ueda’s predecessor Haruhiko Kuroda, it also warned that the costs should also be taken into account.
“The review hints at Ueda’s preference for not using unconventional measures by noting their side effects,” said Tsuyoshi Ueno, a senior economist at NLI Research Institute in Tokyo. “That indicates he thinks rates should be raised to create policy space, as long as economic conditions allow.”
The path ahead is still unclear for the BOJ. With the next policy meeting scheduled to conclude four days after Trump takes over the White House, uncertainties remain high. The central bank has said it won’t raise rates when financial markets are unstable, but a further slide in the yen could be enough to nudge the BOJ into action.
“I still think a January hike is likely but chances aren’t zero for March,” said Dai-Ichi Life’s Kumano. “The BOJ saying it will raise rates when its outlook is realized is a very strong expression showing its intentions, but what the BOJ has actually been doing is dovish.”
--With assistance from Yoshiaki Nohara, Ken McCallum, Erica Yokoyama, Brett Miller, Beth Thomas and Keiko Ujikane.
(Updates with market moves, and more comments from Ueda, economists.)
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