BOJ board member, Toichiro Asada, still isn’t quite ready to jump on the rate hike bandwagon it would seem. The central bank’s resident dove is once again preaching caution, warning that further tightening could undermine the progress that Japan has made in achieving sustainable inflation.
Here are his latest remarks from today:
Inflation has already reached roughly 2%, leaving little reason to push prices higher
BOJ must be cautious about raising interest rates too quickly
Further rate hikes may be necessary in the future, but should be carried out slowly
Not opposed to raising rates altogether and is not considering proposing a rate cut
Japan’s neutral interest rate may be somewhat above the current policy rate
Has no specific terminal interest rate in mind
Policy decisions should be assessed at every meeting, considering economic risks and financial conditions
BOJ could still raise or lower rates even after reaching a level consistent with its inflation target
BOJ does not directly control exchange rates (declines to specify a desirable USD/JPY level)
Further tightening risks weakening underlying inflation, particularly as consumption continues to lack momentum
Now, I wouldn’t read too much into the dovish undertones here. After all, Asada’s call for caution is somewhat consistent with the BOJ’s broader policy communication in saying that future rate decisions will be guided by incoming economic data and financial conditions.
Besides, Asada is also known to have a more dovish view after having opposed the June and September rate hikes. As such, his reservations here aren’t exactly all too surprising.
As things stand, markets are still pricing in roughly 73% odds of another 25 bps rate hike in December. So, that tells us traders are still somewhat convinced that there is further tightening to follow before the year is over and done with.
That being said, a lot can change in four weeks and we’ll have to see how the rest of the BOJ board set out their convictions in the weeks ahead.
For the Japanese yen, the immediate implications from Asada’s comments are limited. With USD/JPY hovering near 160.00, the bigger influences remain the widening contrast between the Fed and BOJ outlooks as well as intervention risks.
This article was written by Justin Low at investinglive.com.
