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The Bank of Japan kept interest rates steady on Thursday but repeated its pledge to continue increasing borrowing costs if the economy moves in line with its projections, shifting investor focus to the prospect of a hike as soon as December.
While the central bank roughly maintained its long-term forecasts, it elaborated on overseas risks that may hurt Japan's recovery in a sign of its focus on growth concerns.
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: IMPACT OF TRADE POLICIES
"There are various risks to the outlook. In particular, there remains high uncertainty on the impact of trade policies on overseas economic and price developments."
PROJECTIONS
"Our projections so far have not changed much from the previous report in July. The likelihood of our baseline projection materialising is heightening somewhat."
WAGE AND PRICES
"We would like to spend a bit more time scrutinising wages and price moves. We will have more data on how companies, hit by 15 per cent tariffs, would respond and set wages including for next year.
"We would like to confirm whether wage and prices will gradually rise in tandem."
INFLATION
"Food inflation is moderating, while underlying inflation is rising moderately. The economy is moving in line with our baseline scenario, so we don't see ourselves as being behind the curve.
"We will continue to scrutinise developments in underlying inflation, and whether food price rises, if they persist, could cause upside or downside risks to the price outlook."
RATE HIKE
"As for the timing and viability of rate hikes, we don't have any preset idea."
TAKAICHI ADMINISTRATION
"We will continue to communicate closely with the government."
U.S. ECONOMY
"AI demand is stronger than expected. The impact of tariffs seems to be delayed significantly. But it could hurt consumption and the economy quite a bit... Even if the tariffs were to affect U.S. consumption, it would come gradually. As such, the risk surrounding the U.S. economy could be smaller than what we expected in April. Still, the government shutdown could affect the economy more than expected, so we'll keep a close eye out on developments."
BESSENT'S COMMENTS CALLING ON BOJ RATE HIKES
"I won't comment directly. We will craft our economic and price outlook, and adjust the degree of monetary support as the likelihood of our projections heighten."
DOMESTIC CONSUMPTION
"Wages are rising moderately but high prices mainly for food are weighing on non-durable goods, services and eat-outs. But consumer sentiment is turning up, so we expect consumption to remain resilient. As for the outlook, it will depend on the outcome of next year's wage negotiations."
NEUTRAL RATE
"Unfortunately, we haven't been able to narrow down the estimated range of Japan's neutral rate given various uncertainties around it."
BOJ DECISION TO KEEP RATES STEADY TODAY
"Uncertainty surrounding trade policy, and their impact on overseas and U.S. economies may have diminished somewhat. But it's still there. For the time being, we would like to scrutinise a bit more data to gauge how next year's wage negotiations could unfold."
YEN MOVES
"I can't comment on short-term moves in exchange rates. It's desirable for currency rates to move stably reflecting fundamentals. As for the impact of currency volatility on the economy and prices, we will always scrutinise the impact including the drivers behind exchange-rate moves."
WHETHER THE BOJ COULD GATHER ENOUGH DATA ON NEXT YEAR'S WAGE OUTLOOK BY ITS NEXT POLICY MEETING IN DECEMBER
"I'm not saying that we need to wait until the final outcome of next year's wage talks becomes available. We want to gather a bit more data on the initial momentum of the talks."
WHETHER JAPAN'S BUDGET DRAFTING IN DECEMBER COULD PREVENT THE BOJ FROM HIKING RATES IN DECEMBER
"Even if the government is in the process of drafting the budget, we can incorporate what we know into our estimates. As such, it's possible for us to change policy (even when the budget drafting is in process)."
FEASIBILITY OF KEEPING POLICY RATE STEADY WHEN INFLATION EXPECTATIONS CONTINUE TO HEIGHTEN
"We have been placing importance on uncertainty over the impact of U.S. tariffs. But we are always closely watching the impact of falling real interest rates on the economy, and will make an appropriate decision at the next meeting."
WHETHER THE BOJ COULD RAISE RATES EVEN WHEN PREMIER TAKAICHI OPPOSES HIGHER BORROWING COSTS
"The reason why we kept rates on hold this time is because overseas economic uncertainties remain high, and because we wanted to await a bit more data on whether companies' positive wage-setting behaviour will be sustained. If we are convinced enough, we will raise interest rates.
"Our main focus is on scrutinising the initial momentum of next year's wage talks. But during the course of scrutinising data on that front, we also want to check the U.S. economy does not worsen more than we expect."
WHETHER DOWNSIDE RISKS TO JAPAN'S ECONOMY HAVE DECLINED
"That's a bit hard to say. The impact of tariffs is being delayed, and could inflict big damage around the final quarter of this year through next year. That's being reflected in our forecasts for fiscal 2026... What we're focusing on in terms of risks to Japan's economy is the initial momentum of next year's wage talks, and whether food inflation will stabilise as we project."
