(Bloomberg) — Bank of Japan Governor Kazuo Ueda reiterated Tuesday that the central bank will continue to raise interest rates if the economy and prices perform as expected by the BOJ, a comment that supported further gains in the yen.
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Ueda made the remark in a document submitted to a government panel chaired by outgoing Prime Minister Fumio Kishida in which he explained the BOJ’s July policy decision.
The yen firmed against the dollar following the release of the comment, adding to gains for the day as Japan’s currency bucked a weakening trend among G-10 currencies. The yen continued to gain ground to briefly reach 146.04 at around 3:40 p.m. in Tokyo.
The comments served to remind market players that despite the meltdown in global markets that was partly triggered by the BOJ’s July rate hike, Ueda remains committed to raising borrowing costs provided the bank’s forecasts materialize.
Around two-thirds of economists surveyed after the slide in markets last month still see the BOJ moving again by the end of the year with 41% of respondents flagging December as the most likely timing.
Pacific Investment Management Co.’s Japan unit expects the central bank to raise rates in January at the earliest. The company says it is ready to actively invest in ultra long-term government bonds as their yields rise to more attractive levels.
In Tuesday’s comments, Ueda again indicated that the economic environment remains accommodative even after the July hike, with real interest rates continuing to be significantly negative. He said that current rates are solidly supporting economic activity.
Ueda’s unwavering position comes as Arif Husain, head of fixed-income at T. Rowe Price warned that there may be more market volatility ahead.
Four private-sector members of the government panel, including business lobby Keidanren head Masakazu Tokura, also submitted a proposal Tuesday suggesting there’s a need to manage macroeconomic policy steadily, citing last month’s market turmoil.
The members also said the BOJ and government should collaborate and communicate with the market closely.
–With assistance from Ken McCallum.
(Updates to add further details on document, background.)
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