By Leika Kihara
OSAKA (Reuters) -Bank of Japan (8301.T) Governor Kazuo Ueda said inflation was on track to durably hit the bank’s target but warned of global uncertainties that could discourage firms from raising wages, leaving himself a free hand on whether to raise interest rates in October.
Ueda reiterated the central bank’s resolve to continue raising still low interest rates if the economy and prices move in line with its forecasts.
But he said there were various uncertainties surrounding Japan’s economic outlook, such as growing signs of labour market weakness in the United States and the expected impact of higher U.S. tariffs on Japanese corporate profits.
“If uncertainty regarding overseas economies and trade policies remains high, firms may place stronger emphasis on cost-cutting and may weaken their efforts to reflect price increases in wages,” Ueda said in a speech to business leaders in Osaka on Friday.
The Japanese yen weakened 0.3% to 147.72 per U.S. dollar after Ueda’s comments, as some market players interpreted them as reducing the likelihood of an October rate hike.
“There wasn’t any clear change in the BOJ’s communication that would suggest it was trying to lay the groundwork for an October rate hike,” said Shotaro Mori, senior economist at SBI Shinsei Bank, predicting that a hike in December was now more likely than October.
The remarks came in the wake of a U.S. government shutdown that began on Wednesday, which is likely to delay the release of key economic data and complicate the BOJ’s rate decision.
While any delay in U.S. data would be a “serious” problem, the BOJ would scrutinise other available data to make up for the loss, Ueda told a news conference after delivering the speech.
Ueda also said he hoped to gather information through talks with policymakers and bankers during the International Monetary Fund (IMF) meeting in Washington later this month, suggesting the gathering’s tone on the global outlook could affect the bank’s decision on whether to hike in October.
“There’s quite significant uncertainty remaining on how tariffs could affect global, U.S. and Japanese economies,” Ueda said, though adding the BOJ did not have to await all hard data to determine whether risks have been dispelled.
Market players have been closely watching Ueda’s comments for any clues on how soon the BOJ will resume a rate-hike cycle that has been paused due to uncertainty over the economic fallout from U.S. tariffs.
