By Kentaro Sugiyama and Leika Kihara
(Reuters) -Japanese Prime Minister Shigeru Ishiba said the country is not in an environment for an additional rate hike, in an apparent effort to shake off his reputation as a monetary hawk, after a meeting with Bank of Japan Governor Kazuo Ueda on Wednesday.
“I do not believe that we are in an environment that would require us to raise interest rates further,” Ishiba told reporters Wednesday night, adding he was not in a position to instruct the central bank on monetary policy.
“I have told the governor that I expect the economy to continue to develop sustainably while maintaining its current easing trend, and that the economy will continue to move towards overcoming deflation.”
At the meeting, Ueda’s first with the new prime minister since he was officially appointed on Tuesday, Ueda said that the central bank was supporting Japan’s economy and will move cautiously in deciding whether to raise interest rates further.
“I told the prime minister that we are supporting the economy with loose monetary conditions,” Ueda said.
Ueda added the BOJ will raise interest rates if economic and price developments move in line with its forecast.
“But I said we will adjust the degree of monetary support cautiously, as we can afford to spend time scrutinising (economic) developments,” Ueda added.
In August, Ishiba told Reuters the BOJ was on the “right policy track” in ending negative rates and endorsed further normalisation of monetary policy, saying it could boost industrial competitiveness.
His focus on the need to get Japan permanently out of deflation underscores the new administration’s preference for the BOJ to go slow in hiking rates, analysts say.
Ishiba’s newly-appointed economy minister, Ryosei Akazawa, also voiced hope on Wednesday that the BOJ would be cautious about raising interest rates further.
While the BOJ’s current policy rate, at 0.25%, was “abnormal in global standards,” Japan’s priority was to “pull out of deflation,” Akazawa said.
The BOJ ended negative rates in March and raised short-term borrowing costs to 0.25% in July on the view Japan was making progress towards durably achieving 2% inflation.
Ueda’s hawkish comments at the time, coupled with weak U.S. jobs data, triggered a spike in the yen and stock market rout in early August. Since then, BOJ policymakers have stressed the need to take into account the economic fallout from market volatility.
The BOJ next reviews rates on Oct. 30-31, when the board also releases fresh quarterly growth and price forecasts. It holds another meeting in December.
A majority of economists polled by Reuters on Sept. 4-12 expected the BOJ to raise rates again by year-end.
