BOJ Stresses Need for Prudence in October Rate Hike Deliberations

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In October, Bank of Japan (BOJ) policymakers reached a consensus to continue raising interest rates if the economy aligns with their forecasts, while emphasizing caution due to uncertainties surrounding U.S. economic policy, according to meeting minutes released on Tuesday. 

The discussion underscores the importance of external risks, particularly those linked to the new U.S. administration’s policies, in determining the timing of future rate hikes. Although the Oct. 30-31 meeting occurred before Donald Trump’s Nov. 5 presidential election victory, board members highlighted potential market volatility and significant shifts in U.S. policy as critical risks to Japan’s economic outlook.

"We need to closely monitor developments in the U.S., including post-election outcomes, given our existing expectation to raise rates at a measured pace," one member noted.

While concerns about external risks persisted, the board expressed optimism about Japan's domestic economic conditions. Many members on the nine-person board anticipated that rising wages would bolster consumer spending and help Japan achieve the BOJ’s 2% inflation target sustainably.

"Wage growth is expected to remain robust in next year’s spring negotiations between companies and labor unions," a few members remarked.

At the October meeting, the BOJ maintained interest rates at 0.25% and projected inflation to hover around its 2% target in the coming years, signaling potential rate hikes in the near term. Although the board agreed on the need to raise rates if economic and price conditions met projections, several members advocated for caution in light of various uncertainties.

"We must steer monetary policy carefully amid rising domestic and global uncertainties," one member stated, justifying the decision to keep rates steady in October. Another member emphasized the need for deliberation, noting that Japan’s policy rate has not exceeded 0.5% in over three decades.

Following the October meeting, the BOJ held rates steady again in December, awaiting additional data to confirm sustained wage growth and greater clarity on the economic policies of U.S. President-elect Donald Trump.

The BOJ had previously ended its negative interest rate policy in March and raised its short-term policy target to 0.25% in July. The central bank has indicated readiness to increase rates further if wages and prices develop as expected.

A Reuters poll conducted earlier this month showed unanimous expectations among respondents for the BOJ to raise rates to 0.50% by the end of March, though opinions varied on whether the move would occur in December, January, or March.

 

 

 

 

 

Paraphrasing text from "Reuters" all rights reserved by the original author.