BoJ's Ueda keeps door open to year-end hike
Oct 31 (Reuters) -There were few surprises from the Bank of Japan’s policy decision overnight as Governor Kazuo Ueda reiterated that further rate hikes will be appropriate, signalling that he is unperturbed by the political backdrop.
Most notably, however, Ueda did highlight the removal of the statement that the BoJ can afford time to scrutinise risks, which in turn keeps the door open to a rate hike at either the December or January meeting.
The recent weakness in the yen, which has been excessive, is likely to have been among the motivations for Ueda to slightly step up his hawkish rhetoric. He recently stated that a clear policy strategy is needed to contain the build-up of yen-funded carry trades. In response to Ueda’s remarks, the yen has bounced back, albeit limited to 152 for now.
Further support resides at the 200-day moving average (151.52), which has put a floor under the pair.
As for whether the BoJ will raise rates at the December meeting, this will be largely dependent on the inflation data at the back end of November. Governor Ueda has said he will monitor service inflation data for the October period, which accounts for Japanese firms making biannual revisions to prices.
Signs that price pressures are broadening could therefore tilt the balance in favour of a year-end rate hike, which given the current 30% odds of such an outcome – up from 25% – leaves room for a hawkish repricing.
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Justin McQueen is a Reuters market analyst. The views expressed are his own, editing by Ed Osmond
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