The Bank of Japan (BoJ) board member Naoki Tamura recently discussed the pace of further rate hikes in Japan. He stated that there is no preset idea on when the BoJ could raise rates again, whether by the end of the year or by the end of the fiscal year in March. Unlike the United States and Europe, Japan’s rate hikes are expected to be slow, with the exact timing dependent on economic and price conditions at the time. Tamura pointed out that Japan’s economy is moving in line with forecasts made in the BoJ’s July meeting.
Tamura emphasized the need for the BoJ to focus on economic and price developments rather than stable markets. He mentioned that markets move in a way that reflects fundamentals in the long term, but rapid market volatility is undesirable. When markets are fragile, it is important to allow time for them to cool down. Tamura highlighted the importance of slowly raising rates in stages while closely monitoring how each rate hike affects economic activity.
Despite Tamura’s comments, the Japanese Yen did not see a significant reaction in the market, with USD/JPY adding just 0.32% on the day to trade near 142.80. Tamura also noted that the weak yen has somewhat reversed, but the earlier rise in import costs is likely to affect consumer inflation with a lag. He mentioned that compared to when USD/JPY was at 160, the upward risk to inflation has subsided somewhat. Overall, the BoJ must continue to raise rates slowly and carefully.
In conclusion, Naoki Tamura’s recent comments shed light on the BoJ’s approach to further rate hikes in Japan. The pace of rate increases will depend on economic and price conditions, with a focus on avoiding rapid market volatility. Despite the lack of a significant market reaction to Tamura’s remarks, the BoJ will continue to slowly raise rates in stages while observing the impact on economic activity. Overall, the BoJ’s cautious approach reflects the need to balance economic growth with inflation concerns in the Japanese economy.
