(Bloomberg) — Bank of Japan Deputy Governor Shinichi Uchida sent a strong dovish signal in the wake of historic financial market volatility in Japan by pledging to refrain from hiking interest rates when the markets are unstable.
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The yen weakened by more than 2% against the dollar and stocks rebounded immediately after his comments, which were the first public remarks by a BOJ board member since the bank hiked interest rates on July 31.
“I believe that the bank needs to maintain monetary easing with the current policy interest rate for the time being, with developments in financial and capital markets at home and abroad being extremely volatile,” Uchida said in a speech Wednesday to local business leaders in Hakodate, northern Japan.
Uchida spoke after large swings in stock prices, as benchmark indexes posted deep declines followed by sharp gains over the previous two days. The deputy chief suggested that the bank will carefully consider the state of financial markets in future decisions on rate policy.
“In contrast to the process of policy interest rate hikes in Europe and the United States, Japan’s economy is not in a situation where the bank may fall behind the curve if it does not raise the policy interest rate at a certain pace,” Uchida said. “Therefore, the bank will not raise its policy interest rate when financial and capital markets are unstable.”
Uchida, a veteran policy architect, who was heavily involved with designing the BOJ’s massive monetary easing program that ran for more than a decade, is widely known for playing a prominent role in mapping out Governor Kazuo Ueda’s journey toward normalizing policy. The BOJ ended the ultraeasy policy in March with its first hike in 17 years.
Uchida noted Wednesday that authorities need to monitor any potential impact on prices and the overall economy coming from market moves, and the trajectory for Japan’s interest rates could shift depending on that impact. The yen’s recent rebound has reduced upside risks for inflation, he added.
–With assistance from Yoshiaki Nohara.
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