(Reuters) – The Bank of Japan kept interest rates steady on Thursday, as policymakers preferred to move cautiously in raising borrowing costs amid uncertainty over U.S. President-elect Donald Trump's economic plans.
As widely expected, the nine-member Bank of Japan Board of Directors decided to keep the short-term interest rate unchanged at 0.25%. But hawkish board member Naoki Tamura objected and suggested raising interest rates to 0.5% on the grounds that inflationary risks were increasing. His motion was voted down.
Quotes:
Bart Wakabayashi, Tokyo Branch Manager, State Street, Tokyo
“Maybe they want to wait until next year and want to get more solid information on wages from Japanese companies – that will be in March or April.
“As long as they can confirm that wages will continue to increase… they will have more confidence to take the next step,” he added.
“I think the Bank of Japan is looking at the US economy and how it will react to the new administration.”
Charu Chanana, Chief Investment Strategist, Saxo, Singapore
“The Fed's hawkish bias and the BoJ's standstill may bring new reasons for yen traders to 'hold on'.” The only thing holding back new carry trades is rising volatility – meaning USDJPY could face strong resistance at 160 if not sooner .
“There is some hawkish leaning in the decision – particularly a dissenter in favor of a rate hike and more signs of an intensifying wage and price spiral. However, it remains unlikely that Ueda will be able to clearly signal a rate hike in January given the doubts surrounding the Fed The Federal Reserve and the Trump Presidency.”
Naka Matsuzawa, Chief Strategist, Nomura Securities, Japan
“So far, it's not a surprise here, but I think the FOMC result yesterday put the BOJ in a corner where the BOJ can't be too dovish so that it can prevent the yen from falling. At the same time, it can't actually be Very cautious hawks either.
“So, the question is whether they can still maintain market expectations for a rate hike in January, which have now fallen almost to 50%. I think we will have to rely on conservative pressures later, so that these expectations do not disappear completely. Even the market Stocks will wait for the governor's conference, so I don't think they will react to this significantly, but they may fall slightly on the back of a weaker yen.
Alvin Tan, Head of Asia FX Strategy, RBC Capital Markets, Singapore
“I would have thought that in light of the Fed's somewhat hawkish statement, you could say that this actually helps the Bank of Japan provide more hawkish guidance….but that has not happened.
“We still have Gov. (Kajo) Ueda's press conference. But overall, if he remains noncommittal on the impending increases, I think that will be unabashedly cautious.”
Shuki Omori, Chief Japan Desk Strategist, Mizuho Securities Corporation, Tokyo
“Monetary policy has been maintained as expected.”
“Given that the economic assessment remained unchanged, the pair briefly touched the 155 level after the release of the statement. The issue now is to what extent the yen will be sold against the major currencies from this point on. If USD/JPY easily crosses the defense lines Ministry of Finance at 158, 160, and 162, there is a possibility that the Ministry of Finance and the Bank of Japan will issue statements to limit the depreciation of the yen at the next resistance level which is likely to be around 156 yen.”
Christopher Wong, Currency Strategist, OCBC, Singapore
“This would have been a good opportunity for the Bank of Japan to raise rates as the Fed hawks, but the Fed's pause and the BoJ's reluctance suggest the USD/JPY could face upward pressure.
“Data on prices and labor market reports continue to support the Bank of Japan's case for raising interest rates. The Fed's shift to more hawkishness should have given BOJ policymakers some relief in raising interest rates today.”
Ben Bennett, Asia Pacific Investment Strategist, Legal & General Investment Department, Hong Kong
“The decision to keep interest rates unchanged was widely expected by investors, so I don't expect a big reaction from the market. However, the Fed's hawkish plan overnight gave the Bank of Japan an option to raise interest rates, and there was one dissenting voice “In favor of a 25 basis point hike, so it looks like interest rates will rise as early as 2025.”
Masahiro Ishikawa, Chief Market Strategist, Sumitomo Mitsui DS Asset Management, Tokyo
“The decision was in line with market expectations, but Nikkei futures pared losses, signaling relief among investors, as the decision came directly after the US Federal Reserve's unexpectedly hawkish view of the US Federal Reserve's interest rate path for next year.”
