Bank of Japan leaves rates unchanged as yen intervention talk swirls
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Bank of Japan governor Kazuo Ueda. Photo: Andrew Caballero-Reynolds/AFP via Getty Images
Concluding a busy week in central bank land, the Bank of Japan elected to leave interest rates unchanged overnight Thursday. But its communications were in sharp contrast to the Fed's from Wednesday.
Driving the news: The bank left its target policy rate at 1% as Bank of Japan governor Kazuo Ueda pledged that it will not fall behind the curve on its interest rate policy, one of several comments that signal more interest rate increases might be on the way.
- It adds up to a sign that a rate hike in the months ahead is more likely.
What they're saying: "Given that underlying inflation is approaching our 2% target, we must scrutinize upside price risks more than ever," Ueda said, according to Reuters' translation.
- "Many of our board members' inflation forecasts are fairly high and they see risks skewed to the upside," he said in the post-meeting press conference. "I would like to take that into account in chairing future policy meetings."
Of note: Like his hawkish American counterparts, Ueda warned that the alternative to small rate increases in response to inflation pressure could be much more disruptive moves later.
- "If we fail in our pursuit of stable price growth, we could be forced to raise rates rapidly," Ueda said. "That would cause nominal rates to rise significantly and destabilize markets. That would be negative for sound economic growth."
The intrigue: It comes amid hints that Japan's Ministry of Finance is intervening in currency markets to try to strengthen the yen, which both Tokyo and Washington have seen as undervalued.
The latest: The Financial Times reported Friday morning that the U.S. Treasury has informed major banks it may intervene to prop up the value of the yen on Friday.
- A social media post from Treasury Secretary Scott Bessent, while not explicitly confirming those plans, was very much a non-denial, referencing Ueda as a "longtime friend" and saying he looked forward to meeting Japanese officials at a gathering in North Carolina next month.
- "We continue to enjoy a strong relationship and close coordination," Bessent wrote on X.
