- Further rate hikes will depend on economic activity, prices and financial conditions
- There is risk of underlying inflation deviating upwards to the level above the price target
- Important for underlying inflation to stabilise around 2% level
- Uncertainties remain with regards to situation in the Middle East
- Need to pay close attention to how said developments will affect economy, prices
- Pace of any future tightening will also depend on Middle East developments
- Need to examine likelihood of realising baseline scenario in considering timing, pace of future rate hikes
- Wage-price mechanism has taken root, aligned with 2% price target in recent years
Well, it took them long enough to finally deliver this rate hike that was arguably pending since January. At the time, the BOJ thinking was to wait for the result of the spring wage negotiations to justify their decision. But then came along the US-Iran conflict. Dum, dum, dum.
As such, that made the optics of this decision look much worse than it does – at least relative to the situation with Japan’s economy and fiscal position.
The only good news now is that hopefully lower oil prices will help alleviate some of the pain faced by households. And more importantly, hopefully that will help with the bottom line for Japanese firms, especially the small-to-medium enterprises. Otherwise, they will be forced to eat the costs and that may threaten to deliver weaker wage growth for the coming fiscal year.
USD/JPY continues to trade at 160.20, little changed from before Uchida began speaking.
