Oct 30 (Reuters) – The Bank of Japan kept interest rates steady on Friday, but revised up its inflation forecast and stressed anew its readiness to continue pushing up borrowing costs to forestall mounting inflation risks.
The central bank decided to maintain its short-term policy target at 1.25% by an 8-1 vote. Board member Hajime Takata dissented to the decision.
Governor Kazuo Ueda will hold a news conference at 3:30 p.m. (0630 GMT) to explain the policy decision.
COMMENTS
MASATO KOIKE, SENIOR ECONOMIST, SOMPO INSTITUTE PLUS, TOKYO:
“The ETF was the surprise. I was a little taken aback by that, but its weight is still small, so while it may have some impact on today’s stock market, it is something that can be absorbed over the medium to long term without major disruption.
“On prices, the BOJ’s language that interest rates are broadly consistent with its outlook, together with the upgraded CPI forecasts in the Outlook Report, was largely as expected. But it allowed the BOJ to strengthen its rate-hike bias and hawkish stance more than before.
“This can be taken as a signal toward a December rate hike, in the sense that the 2% inflation target has been achieved.
“The key points to watch in Ueda’s news conference are his explanation on ETFs and his comments on the 2% target.”
TOHRU SASAKI, CHIEF STRATEGIST, FUKUOKA FINANCIAL GROUP AND FORMER BOJ OFFICIAL, TOKYO:
“Speeding up ETF sales is a bit surprising. It’s unhealthy for the central bank to hold such a big amount of stocks, but I’m not sure if the timing was good in this risk-off environment. I’m a bit worried about the reaction in the Japanese stock market going forward.
“Then in terms of monetary policy, the BOJ said that the underlying CPI inflation is at a level that is generally consistent with the price stability target of 2%. They have been saying the underlying CPI is approaching the 2% target.
“So, the BOJ sounds a little bit soft, probably compared to the market expectation. In the end, this nuance of wording toward the underlying inflation and also just one dissident gives a somewhat less hawkish impression.
“Probably Ueda-san will try to drive safely, especially in regard to the stock market reaction in the afternoon. So if the stock market decline is relatively large, Ueda-san cannot be so hawkish. His tone could be a bit dovish.”
HIROFUMI SUZUKI, CHIEF FX STRATEGIST, SMBC, TOKYO:
“Board member Takata dissented, but this is unlikely to be a major market catalyst. The BOJ also announced a revision to the pace of its ETF sales. However, with the disposal of its ETF holdings still expected to take 43 years, the impact on financial markets is likely to be limited.
“A significant shift from its previous assessments, however, was the BOJ’s recognition that underlying inflation, excluding temporary factors, had reached its 2% target.
“Recent developments in France and declines in US equities have contributed to a tightening of global financial conditions. USD/JPY has also responded with yen appreciation at times, leaving the BOJ under no pressure to rush into a rate hike.”
MASAHIKO LOO, CHIEF FIXED INCOME STRATEGIST, STATE STREET INVESTMENT MANAGEMENT, TOKYO:
“A boring hold, but an important shift in the Outlook Report. The BOJ’s recognition that underlying inflation is now around 2% brings its assessment closer to the reality that conventional inflation measures have already been around or above target for much of the past four years.
“Taking its cue from the Fed and ECB, the BOJ has little reason to rush, particularly with US midterm elections potentially adding volatility across currencies and bonds. Ueda can stay data-dependent, keep every meeting live and preserve the next hike for around the turn of the year.
“The surprise was the acceleration in ETF disposals. Cutting the estimated unwind from 112 years to 43 years is substantial, and at least puts completion within a human investment horizon. But 43 years is still extremely gradual, with annual sales amounting to only around 0.1% of market turnover. The message is consistent with the broader normalization story: the BOJ is becoming more willing to unwind its legacy balance sheet, but remains determined to do so without disrupting markets.”
(Reporting by Reuters Asia markets team; Compiled and edited by Subhranshu Sahu)
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