Sept 18 (Reuters) – The Bank of Japan raised interest rates to a 31-year high of 1.25% on Friday in a widely expected move to forestall risks of inflation overshooting its 2% inflation target.
At a two-day policy meeting that ended on Friday, the board decided by a 7-2 vote to raise its policy rate from 1%. Board members Toichiro Asada and Ayano Sato dissented to the decision.
COMMENTS
KENTO MINAMI, SENIOR ECONOMIST AT DAIWA SECURITIES, TOKYO:
“The overall impression of the statement was dovish.”
“BOJ’s new board members Ayano Sato and Toichiro Asada dissented from the decision. They were chosen by Prime Minister Sanae Takaichi, which suggests difficulties in raising rates in the future as the BOJ will have new board members going forward.”
“The statement indicated that the BOJ would raise rates at least once every six months, but this was in line with market expectations that the BOJ would raise rates every three months. These two dissenters were a dovish factor, which is why the yen started falling right after the decision.”
MASATO KOIKE, SENIOR ECONOMIST, SOMPO INSTITUTE PLUS, TOKYO:
“I think the statement was hawkish, but markets had expected something even more hawkish, which is why the yen weakened after the announcement.”
“What struck me as hawkish was the explicit reference to accommodative financial conditions, and the wording that the BOJ will continue to adjust the degree of monetary easing. It also clearly mentioned upside risks.
“In addition, the BOJ cited a range of factors — not just crude oil, but price increases linked to AI-related demand, the weaker yen, and the mutually reinforcing mechanism between wages and prices. Those elements made the decision look hawkish overall.”
“I don’t think (Sato joining Asada in dissent) will have an impact when it comes to the pace of rate hikes being delayed. Sato’s dissent was in line with expectations, but I see it as opposition to the timing or pace rather than a blanket objection to rate hikes. It did not come across as outright opposition, which I think is positive for the BOJ as it proceeds with further rate increases.”
HIROFUMI SUZUKI, CHIEF FX STRATEGIST, SMBC, TOKYO:
“The rate hike itself was in line with market expectations, but the two dissenting votes came as a modest surprise, as only some market participants had anticipated them.
“The outcome has somewhat tempered expectations for further rate hikes and conveyed a dovish impression.
“The pace of future rate hikes is likely to depend primarily on the views of the BOJ’s leadership. We therefore do not expect the pace to differ significantly from current market expectations.
“The yen initially weakened following the decision, but attention now turns to Governor Ueda’s inflation outlook and policy stance at the press conference.”
FRED NEUMANN, CHIEF ASIA ECONOMIST, HSBC, HONG KONG:
“The tone of the statement, along with two dissenters on the decision to raise rates, leaves lingering doubts that Japan’s central bank will be cautious in tightening monetary policy further. In addition, new inflation numbers out this morning for August showed that price pressures remained unchanged in August, rather than accelerate.”
“All eyes are now on the press conference to be held by Governor Ueda, with the market looking for hawkish reassurances that the BOJ is prepared to raise rates again soon. While back-to-back hikes appear unlikely, investors will look for clues as to whether officials are prepared to raise interest rates again in December. Given that the Fed has tilted into a more hawkish direction, the pressure remains for the BOJ to follow suit: Governor Ueda will have to follow-up today’s rate hike with by keeping the door open for another hike before the end of the year.”
(Reporting by Reuters Asia markets team; Editing by Eileen Soreng)
