Analysts react to BOJ decision to keep rates steady

Oct 30 : The Bank of Japan kept interest rates steady on Friday, but revised up its inflation forecast and stressed anew its readiness to continue pushing up borrowing costs to forestall mounting inflation risks.

The central bank decided to maintain its short-term policy target at 1.25 per cent by an 8-1 vote. Board member Hajime Takata dissented to the decision.

Governor Kazuo Ueda will hold a news conference at 3:30 p.m. (0630 GMT) to explain the policy decision.

COMMENTS

HIROFUMI SUZUKI, CHIEF FX STRATEGIST, SMBC, TOKYO:

"Board member Takata dissented, but this is unlikely to be a major market catalyst. The BOJ also announced a revision to the pace of its ETF sales. However, with the disposal of its ETF holdings still expected to take 43 years, the impact on financial markets is likely to be limited.

"A significant shift from its previous assessments, however, was the BOJ's recognition that underlying inflation, excluding temporary factors, had reached its 2 per cent target.

"Recent developments in France and declines in US equities have contributed to a tightening of global financial conditions. USD/JPY has also responded with yen appreciation at times, leaving the BOJ under no pressure to rush into a rate hike.

"At Governor Ueda's press conference, the key focus will be his assessment of the recent changes in global financial conditions. For now, the BOJ is likely still at the stage of monitoring developments. However, if it adopts a more pronounced wait-and-see stance, it could favour January rather than December for its next rate hike."

MASAHIKO LOO, CHIEF FIXED INCOME STRATEGIST, STATE STREET INVESTMENT MANAGEMENT, TOKYO:

"A boring hold, but an important shift in the Outlook Report. The BOJ's recognition that underlying inflation is now around 2 per cent brings its assessment closer to the reality that conventional inflation measures have already been around or above target for much of the past four years.

"Taking its cue from the Fed and ECB, the BOJ has little reason to rush, particularly with US midterm elections potentially adding volatility across currencies and bonds. Ueda can stay data-dependent, keep every meeting live and preserve the next hike for around the turn of the year.

"Bottom line: boring hold, hawkish direction. The debate is no longer whether the BOJ normalises, but where terminal lands. Our base case remains around 1.75 per cent as Japan joins the synchronised global tightening cycle."