Source: Jin10 Data
Author: Yang Large Cap

Bank of Japan Governor Kuroda reiterated in his speech that although if the data allows, the Bank of Japan would again raise key interest rates, the authorities will not rush to do so. This indicates that the likelihood of the central bank raising interest rates at the next month's meeting is very low.

Kuroda stated on Tuesday: "When making policy decisions, the Bank of Japan needs to carefully assess the development of domestic and international financial and capital markets, as well as the overseas economic conditions behind these developments. We have enough time to do so."

This latest comment came after similar information was issued by Kuroda last Friday. At that time, Bank of Japan officials unanimously voted to keep interest rates unchanged.

Kuroda acknowledged in his speech on Tuesday the criticism from the market regarding the communication from the Bank of Japan before the rate hike on July 31. In this context, Kuroda's cautious tone in the latest speech may reinforce the view of observers of the Bank of Japan that the committee will continue to maintain interest rates unchanged at the next meeting ending on October 31.

"Following the severe criticism of the Bank of Japan for the lack of communication regarding the rate hike in July, Kuroda seems to be trying to be more cautious and clear in communication," said Eiji Kitada, an economist at the Hamagin Research Institute. "He said the rate hike is coming, but not so soon."

Kuroda hinted at a dovish stance on inflation prospects in his speech after last week's decision, saying, "Given the recent strength of the yen, the upside risks to inflation seem to be easing."

After touching a 38-year low, the yen has risen significantly in the past two months, benefiting from expectations of a narrowing interest rate differential between the US and Japan. The Fed's rate cut cycle launched last week provided support for this view. Kuroda identified the yen's rebound as a key factor in suppressing upward price risks.

Utida's speech was delivered a few days before the ruling Liberal Democratic Party was to elect a new leader on Friday, and this election will determine who will succeed Fumio Kishida as the Prime Minister of japan. Although local media reports suggest a close contest, observers at the Bank of Japan are closely watching whether Takashi Oizumi, a strong advocate of monetary easing policies, can emerge victorious.

One of the three main contenders, Takashi Oizumi, stated on Monday that raising interest rates now would be "foolish" as japan needs loose monetary policies to ensure the end of deflation. Another strong candidate, Jiro Koizumi, stated on Monday that if he takes office, he will immediately order the preparation of an economic stimulus package.

After his speech, Utida told reporters that he refused to comment on how he would respond if the new government opposes rate hikes, simply pointing out that regardless of who becomes the leader, the Bank of japan will continue to maintain close communication with the government.

Kitada said, "According to the law, the Bank of japan is independent, but if the government opposes rate hikes, it may make it more difficult for the Bank of japan."

Many economists expect the Bank of japan to wait until December or January next year to raise the benchmark interest rate again after having raised it twice this year.

"If the economic activity and price outlook presented in the economic activity and price outlook report materialize, the Bank of japan will accordingly raise the policy interest rate," Utida said, referring to a quarterly economic report indicating that the inflation rate is expected to reach its target level around later next year.

He stated that if consumer prices stabilize at around 2%, then keeping the policy interest rate at a neutral level would be appropriate.

Editor/Jeffy