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Investing.com - Bank of Japan Governor Kazuo Ueda indicated plans earlier Friday to raise interest rates once more if the economy and inflation turn out as forecast, and Citi expects the Japanese central bank to hike in December this year.
Ueda testified in front of the National Diet, warning that financial markets remained unstable but also signaled his readiness to raise interest rates if inflation stayed on course to sustainably hit the 2% target.
“Markets at home and abroad remain unstable, so we will be highly vigilant to market developments for the time being," Ueda said in parliament, but “Japan's short-term rates are very low. If the economy is in good shape, they will move up to levels deemed neutral."
“Governor Ueda's speech to the Diet today was largely unsurprising, while he was a little more dovish than at the July meeting, he was more hawkish than Deputy Governor Uchida was in his speech on August 7,” sad analysts at Citi, in a note dated Aug. 23.
The market environment is calmer than it was when Deputy Governor Uchida made his remarks, so it is understandable that the BoJ's true position came out more clearly, Citi added.
“We still expect the BoJ to raise rates in December this year if the US economy continues to make a soft landing (otherwise we expect a hike to be delayed until April next year),” Citi added.
The BOJ ended negative interest rates in March and raised its short-term policy rate to 0.25% in July in a landmark move away from a decade-long ultra-easy monetary policy stance.
The surprise July rate hike and Ueda's hawkish signal triggered a market rout, forcing his deputy, Deputy Governor Uchida, to offer dovish reassurances that no hikes would come until markets stabilize.
