Bank of Japan Governor reiterates: Economic environment remains accommodative, will continue to raise interest rates if data meets expectations
Bank of Japan Governor Haruhiko Kuroda reiterated that if economic and price data meet expectations, interest rates will continue to rise. Although there was a rate hike in July, real interest rates remain significantly negative, and the economic environment remains loose. The short-term exchange rate of the Japanese yen against the US dollar rose to 146.13 yen. Kuroda stated that the rate hike and balance sheet reduction decision at the end of July were based on economic data meeting expectations and there is an upside risk. The market expects further rate hikes this year, especially as the inflation report in October will have a significant impact on future policies
Bank of Japan Governor Katsunobu Kato reiterated in a document that if economic and price data meet expectations, the central bank will continue to raise interest rates.
According to the latest report from Bloomberg, Katsunobu Kato submitted a document on Tuesday to the government's economic and fiscal policy group to explain the Bank of Japan's policy decision in July, with Prime Minister Fumio Kishida serving as chairman of the group.
After the news that Katsunobu Kato maintained his stance on raising interest rates, the yen strengthened against the US dollar in the short term, now trading around 146.13 yen.
The document shows that Katsunobu Kato stated that due to real interest rates still significantly negative, even after the rate hike in July, the economic environment remains accommodative.
At the end of July, the Bank of Japan announced both a rate hike and balance sheet reduction, exceeding expectations with a 15 basis point rate hike and a reduction of 400 billion yen in bond purchases per quarter. According to the latest document, the central bank decided to raise rates in July because the economic and price trends met the central bank's expectations, and there were upward risks to prices.
Following this unexpectedly hawkish move, the market mostly expects the Bank of Japan to have further room for rate hikes later this year.
JP Morgan believes that the inflation report in October is crucial, as many service prices will be revised that month. If service prices do indeed rise as expected, this may prompt the Bank of Japan to further tighten monetary policy in December.
During a parliamentary hearing in mid-September, Katsunobu Kato hinted that the central bank does not intend to rush into rate hikes, but rather will closely monitor the impact of unstable financial markets on inflation prospects. However, if the certainty of the economy increases, the Bank of Japan will adjust its stance on monetary easing policy.
Affected by the depreciation of the yen, Tokyo's CPI accelerated in August, rising by 2.6% year-on-year, significantly higher than the previous value of 2.2%, while the core CPI (excluding fresh food and energy) rose by 1.6% year-on-year, surpassing the expected 1.4% and the previous value of 1.5%. JP Morgan expects that commodity prices will remain the main driver of inflation in the short term, and wage pressures may further push up service prices