BOJ Governor Ueda: ‘Risk Scenario Has Intensified’

BOJ holds policy rate at 0.75%

Middle East situation considered… tightening stance maintained

Kazuo Ueda, governor of the Bank of Japan, said on the 19th that a rise in crude oil prices due to the situation in the Middle East has “raised the risk scenario.”

Speaking at a press conference the same day, Ueda said, “We will assess the risks and conduct policy appropriately,” reiterating that the BOJ intends to maintain its path of raising interest rates. He emphasized that the bank will “choose an appropriate response in light of factors such as the pace of inflation and the degree of impact from any economic deterioration.” The BOJ decided at its policy meeting to keep the policy rate unchanged at 0.75%.

On the Middle East situation, Ueda said that “the key point is what impact it will have on Japan’s economy.” He pointed out that higher oil prices “increase the likelihood of weighing on the economy through a deterioration in the terms of trade.” On inflation, he added that “in the short term, it could push up energy prices, and it could raise medium- to long-term inflation expectations.”

He said the impact on underlying inflation, excluding temporary factors, “could move in either direction.” While noting, “I would like to make a judgment after watching developments a bit more,” he added, “A rigorous assessment is difficult, but it is possible that we will be able to gauge the direction and the magnitude of the fluctuations in the near term.”

In recent FX markets, the yen has continued to weaken against the dollar. Ueda said, “Compared with the past, it is possible that the impact of exchange-rate moves on pass-through to domestic prices and on underlying inflation has strengthened,” adding, “We will analyze it carefully.” As for the impact of Middle East developments on FX markets, he said, “I will refrain from commenting specifically.”

Regarding the spring wage talks, which underpin decisions on whether to raise rates, he said, “Based on the information available so far, they appear solid,” adding that “it is likely to spread to small and midsize firms as well.” Markets see a strong likelihood that the BOJ could raise the policy rate again as early as April.

Tokyo=Correspondent Kim Il-gyu black0419@hankyung.com