Agencies
Bank of Japan Governor Kazuo Ueda’s unexpectedly dovish position on interest rate hikes expressed at a recent press conference puzzled many market players, calling further into question the central bank’s communication style that it has previously admitted needs to be improved.
Explaining the bank’s latest decision to forego a rate hike, Ueda cited the “extremely slow” underlying pace of inflation and noted that the rise in import costs from a weaker yen is “calming down.” He suggested the bank is in no hurry for another hike.
“There have been no factors that would clearly prevent the BOJ from raising rates,” said Koichi Fujishiro, an economist at the Dai-ichi Life Research Institute, who had predicted a December rate increase was possible.
“It’s hard to tell if the current BOJ is a dove or a hawk. All we know at this point is it is just a bird,” he said, implying the bank is wavering.
Ueda’s tone was notably different from that of October, when he signaled the bank was closer to another rate hike on the back of easing concerns about overseas economies.
Ueda stated that he will no longer say the BOJ has “more time” to assess if further monetary tightening is necessary.
He used the expression in September right after the bank decided to keep its policy rate on hold at around 0.25 percent.
In mid-November, Ueda said that the BOJ is making “progress” toward achieving its 2 percent inflation target durably. Meanwhile, he said in a media interview published later that month that the timing of the next rate hike is “nearing.”
Those who had taken his words at face value were confused on Thursday when Ueda said he is waiting for more data, particularly on wage trends, before determining when to hike again.
The comment led some analysts to believe the next hike may not come until March, when major Japanese firms conclude their annual wage negotiations with labor unions.
“The BOJ’s communication has room for improvement,” said Masahiro Ichikawa, chief market strategist at Sumitomo Mitsui DS Asset Management Co.
The bank “should convey messages in a way that does not lead market participants’ perceptions about its policy to swing” he said.
Key economic indicators have so far been moving in line with the BOJ’s expectations, experts say, meaning it could raise interest rates at any time.
Some analysts say the bank’s change in discourse may have been attributable to recent political developments.
A small opposition party, the Democratic Party for the People, which advocates for policies aimed at increasing disposable income among young people, made headway in October’s general election, while the ruling coalition led by Prime Minister Shigeru Ishiba’s Liberal Democratic Party lost a majority in the powerful lower house.
The DPP’s increased political clout derived from its younger voters who are struggling to repay mortgages, as well as the fact that Ishiba’s government is drawing up measures to stimulate the economy, may have discouraged the BOJ from raising rates on Thursday, analysts said.
“The government and the ruling parties are in the midst of discussions over economic measures,” said Saisuke Sakai, economist at Mizuho Research & Technologies Ltd.
If the BOJ had raised rates, it would have had trouble “offering a convincing reason for the decision under such a situation.” The BOJ is exploring the right timing for a rate increase amid the changing political environment.
