July 31 (Reuters) – The Bank of Japan kept interest rates steady on Friday but signaled its resolve to continue pushing up borrowing costs, in the wake of the government’s yen-buying intervention overnight that failed to give the sagging currency lasting support.
Board member Hajime Takata was the sole dissenter to the decision, calling for a rate hike to 1.25% to respond to inflationary risks from external demand shocks.
Following are excerpts from BOJ Governor Kazuo Euda’s comments at his post-meeting new conference, which was conducted in Japanese, as translated by Reuters:
FOCUSED ON MEDIUM- TO LONG-TERM INFLATION EXPECTATIONS
“Among factors I am particularly focusing on are several data on medium- to long-term inflation expectations, some of which are solid or rising.”
POSSIBILITY OF SPEEDING UP RATE HIKES “If we feel that monetary conditions are accommodative, there is a chance we could speed up the pace of interest rate hikes.”
INFLUENCE OF CURRENCY VOLATILITY ON INFLATION INCREASING
“The impact of currency volatility on inflation may be becoming bigger than in the past. We have also seen significant weakening of the yen in the past year. Given underlying inflation is nearing 2%, we must focus on upside price risks unlike in the past … With underlying inflation so close to 2%, the damage from such inflation risk materializing would be huge. We laid out three factors as risks to inflation, with currency moves among them.”
DELAYED BUT RAPID RATE RISE WOULD BE NEGATIVE FOR GROWTH “If we fail in our pursuit of stable price growth, we could be forced to raise rates rapidly. That would cause nominal rates to rise significantly and destabilise markets. That would be negative for sound economic growth. Price stability is also important to promote investment.” RISK OF INFLATION OVERSHOOT”At a time when there is a risk of underlying inflation overshooting, delaying necessary policy action could materialize such a risk and hurt the economy.”WATCHING FOR IMPACT OF AI DEMAND AND CURRENCY MOVES “The impact of AI demand and currency moves are among important risk factors we are looking at. We will look at how such factors could affect the economy and prices from our next policy meeting onward in debating monetary policy.” STABLE RATE FORMATION REQUIRES APPROPRIATE GUIDANCE”I won’t comment on daily market moves. For stable rate formation in market, it is important for monetary policy to be guided appropriately and for long-term fiscal policy to be guided in a way that maintains market trust.” UPSIDE PRICE RISKS NEED SCRUTINY”Given that underlying inflation is approaching our 2% target, we must scrutinize upside price risks more than ever. We will debate our policy from our next meeting onward with this point in mind.”
(Reporting by Leika Kihara; Editing by Ronojoy Mazumdar)
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