(Reuters) – The Bank of Japan held interest rates steady on Wednesday, as expected, as policymakers opted to spend more time gauging the impact of potential higher U.S. tariffs on the export-dependent economy.
This decision came amid concerns about a global slowdown driven by U.S. President Donald Trump’s tariff policy, which overshadowed wage and price data indicating Japan’s progress toward sustainably achieving the BOJ’s 2% inflation target.
Following are excerpts from BOJ Governor Kazuo Ueda’s comments at his post-meeting news conference, which was conducted in Japanese, as translated by Reuters:
RISING INFLATION RISKS COULD SPEED UP MONETARY ADJUSTMENTS
“If upside risks to underlying inflation heighten, that will be a reason to accelerate our process of adjusting the degree of monetary support.”
IMPACT OF LONG-TERM RATES ON ECONOMY AND BOJ’S DECISION
“In terms of the impact on the economy, moves in short- and medium-term rates are biggest and they are still deeply in negative territory in real terms. When looking at the entire yield curve, their levels are still underpinning economic activity.”
IMPACT OF RISING RICE COSTS ON HOUSEHOLDS’ INFLATION VIEWS
“Households’ inflation expectations are frequently affected by food and fuel costs in many countries, particularly short-term expectations. We’re looking carefully at medium- and long-term inflation expectations and whether they’re changing. If they change, that could shape up such as prodding households front-loading purchases of durable goods.” PRIVATE ESTIMATES ON WEAK FIRST-QUARTER GDP
“It’s true consumption is somewhat weak when looking at indicators that the BOJ releases, but we see this as due to technical factors. We’re not as pessimistic as the private forecasts suggest. We’ll look carefully at economic and price developments, particularly price moves. But we won’t be raising rates when the economy is in very bad shape.”
IMPACT OF RISING FOOD COSTS ON CONSUMPTION
“It’s true that consumption for food and non-durable goods is weak. But spending on services and durable goods are not that weak and haven’t been hit much by the pain from rising living costs … When looking at developments in services prices, the risk of us being behind the curve in dealing with inflation isn’t high.” PROLONGED RICE PRICE HIKES POSE INFLATION, SENTIMENT RISKS
“Rising food costs are usually seen as supply shocks that can be overlooked. However, the prolonged increase in rice prices means the risk of these rises affecting inflation expectations and public sentiment is not negligible. As such, we will need to watch such risks carefully.”
TRUMP’S TRADE POLICY
“Tariffs could directly affect the economy and inflation. They also affect sentiment and confidence such as through market moves. We need to look comprehensively at such impact.
“While there might be factors we may not find out until much later, there are factors we will know fairly soon such as changes in public sentiment. We’ll make sure not to be too behind the curve (in dealing with inflation risks).”
GLOBAL ECONOMIC UNCERTAINTY
“Overseas uncertainty has heightened sharply lately, while there are other factors that could become clearer down the road. It’s hard to quantify the risk. But we could take into account some elements (of the impact of U.S. tariffs) in our April quarterly report.”
WAGE-INFLATION CYCLE ON TRACK
“On the domestic wage-inflation cycle, it’s on track. Last week’s wage negotiations outcome was somewhat stronger than expected. Some board members called for the need to be mindful of upside price risks. So we need to be mindful of both (downside growth and upside price) risks.”
U.S. TRADE POLICY
“In the past month or so, there have been rapid changes in the scope and speed of U.S. tariffs. However, there are aspects we may not know even beyond April, so uncertainty remains high. We will scrutinise how the U.S. trade policy unfolds, how it affects the U.S. and other global economies, and how that all impacts Japan’s economic and price outlook.”
THE BOJ’S ETF HOLDINGS
“We would like to spend more time and reach an appropriate decision.”
RATE HIKES POSSIBLE IF ECONOMY AND PRICES ALIGN
“If the economy and prices move in line with our forecast, we will continue to raise our policy rate and adjust the degree of monetary support as current real interest rates are very low.”
RISING FOOD PRICES MAY IMPACT INFLATION, STILL BELOW 2%
“Various food prices, including the price of rice, are increasing. While this is largely due to weather and other factors, they could affect underlying inflation through household sentiment and inflation expectations. We need to be mindful of such side effects on underlying inflation. There’s no change to our view that while underlying inflation is gradually heightening, it remain below 2%.” WAGE HIKES
“This year’s wage negotiations so far have shown wage hikes not just among big firms, but smaller firms. It shows wage gains are broadening. This is roughly in line with our projection in January … we will look not just at wages, but the economy, prices and risks in deciding policy.”
(Reporting by Leika Kihara; Editing by Sherry Jacob-Phillips)
