(Bloomberg) — Bank of Japan Governor Ueda Kazuo hinted at a possible interest rate hike in July despite market skepticism after he said the bank would take another big step toward quantitative tightening by reducing bond purchases next month.
Most read articles on Bloomberg
“Reducing bond purchases and raising the policy interest rate are separate issues,” Ueda said in response to a question in parliament on Tuesday. “It is entirely possible that the policy interest rate will be raised depending on data and information on the economy, inflation and financial situation.”
A Bloomberg survey of Bank of Japan watchers earlier this month found that a third expected a rate hike in July, while a slim majority expected the central bank to cut bond purchases on June 14. Officials have announced their intention to cut purchases but said details would not be released until July 31, when the bank’s next board meeting ends.
At a press conference after the decision, Governor Ueda said a rate hike in July was “of course” possible depending on the data, helping to ease pressure on the yen.
Some economists were not convinced. Many have since pushed back their expected timing for a rate hike or downgraded the likelihood of one, arguing that releasing a detailed blueprint for QT and implementing a rate hike in the same month was unusually aggressive.
As for reducing bond purchases, Ueda gave little indication on Tuesday about the size of the cut. He said last week that the amount would be significant, sparking speculation among bond traders and without providing any response in his parliamentary remarks.
Bank of Japan watchers are analyzing the governor’s remarks on interest rates to see if he is really trying to hint at a rate hike or is just trying to warn currency speculators to ease pressure on the yen. As a former academic, Ueda may be speaking from a purely theoretical perspective.
(Updated to include comments from parliamentary attendance)
Most read articles on Bloomberg Businessweek
©2024 Bloomberg LP
