Kazuo Ueda’s speech did not mention consecutive interest rate hikes at all; Is the Bank of Japan set to hold rates unchanged in October?

Zhihu Finance APP noted that Bank of Japan Governor Kazuo Ueda showed virtually no intention of challenging the market’s current bearish bets on a second consecutive rate hike by the central bank this month, merely reiterating the bank’s consistent policy stance.

During a brief speech in Tokyo on Tuesday, Kazuo Ueda stated, “We intend to continue raising policy rates and adjust the degree of monetary easing depending on changes in economic activity, prices, and financial conditions.”

The central bank governor said, “We will consider the timing and pace of these adjustments as we assess risks and the likelihood of the baseline outlook for the economy and prices being realized.”

These remarks come at a time when economists generally expect the Bank of Japan to keep policy unchanged at the next monetary policy committee meeting on October 30. By reiterating the central bank’s policy stance and economic perspective, Kazuo Ueda did little to dispel these expectations while leaving room for rate hikes after October.

Pricing of overnight index swaps indicates that investors see about a 12% probability of a rate hike this month, down from as high as 40% earlier last week. If the December meeting is taken into account, the probability of a rate hike rises sharply to around 90%.

The governor reiterated views he expressed after last month’s policy rate hike, emphasizing the need to prevent inflation from overshooting the target.

Kazuo Ueda stated, “We believe it is becoming increasingly important to stabilize the underlying inflation rate around 2%, and to ensure that the risk of inflation exceeding the 2% price stability target does not materialize and adversely affect the economy.”

The Bank of Japan raised its benchmark interest rate on September 18, just three months after the June rate hike, marking the shortest interval between hikes since 1990. In the press conference following the meeting, Kazuo Ueda said the bank’s policy phase had shifted to focusing on stabilizing price trends, rather than advancing them toward the 2% target as in the past 13 years.

Kazuo Ueda stated that it is necessary to pay close attention to risks arising from the Middle East conflict, demand related to artificial intelligence, and exchange rate fluctuations. He added that there is a possibility that underlying inflation could rise above the target.

In the summary of opinions from the September meeting, a government official—likely Minister of State for Economic and Fiscal Policy Yoshimasa Hayashi—stated that the government hopes the Bank of Japan will carefully assess the impact of interest rate hikes implemented so far, indicating a cautious attitude toward further rate increases.