- The pace of inflation rise is expected to see upward pressure from higher oil prices
- Global markets are volatile with oil prices jumping significantly
- Risk factors now include Middle East conflict, oil prices, financial and also FX market developments
- Need to pay attention to those risks and how they affect Japan’s economy, prices
- Will continue to raise policy rate if economy, prices move in line with forecast
- Trend inflation will become more difficult to read
- No change in stance that timing of future rate hikes would be evaluated at every meeting
- Will have to analyse to what extent surging oil prices would impact the economy
- Surging oil prices could push up inflation expectations and underlying inflation
The full decision coverage from earlier: The Bank of Japan held its short-term policy rate at 0.75%, as widely expected
So far, there’s nothing out of the ordinary from Ueda. He is mostly emphasising the impact of the US-Iran conflict and higher oil prices, and what that does to the Japanese economy. In essence, that is what is putting them off from pursuing the next rate hike at this point in time at least.
The language is very much what you would expect, given their decision to stay on hold today. That as well as reaffirming that they could still raise interest rates further, should the economic and inflation outlook play out as they expect it to.
However, the latest developments in the Middle East have definitely complicated that picture. It might help to bump up overall price pressures at the balance, but it isn’t the kind that the BOJ desires. They want a more wage-driven structure rather than cost-push inflation in the economy. So, there’s that to keep in mind.
USD/JPY is down 0.1% to 159.69 on the day, keeping lightly changed as the dollar holds a bit softer as well so far.
This article was written by Justin Low at investinglive.com.
