Inflationary pressures mount on the Bank of Japan • Increased prospects of an additional increase in Japanese interest rates
The Japanese yen rose in the Asian market on Friday against a basket of global currencies, moving in positive territory against the US dollar, approaching a two-week high, on the verge of a weekly gain, following the testimony of Japan Bank Governor Kazuo Oeda before the Japanese parliament.
The Bank of Japan still plans to raise interest rates if the economy and inflation move as expected, Oeda said, adding that it sees upward risks to inflation in the country.
Data showed consumer prices accelerated in July, showing mounting inflationary pressures on Japan bank’s monetary policymakers, boosting the prospect of a further increase in Japanese interest rates.
Price outlook • Japanese yen exchange rate today: The dollar fell against the yen by about 0.7% to (145.29 ¥), from the opening price of today’s trading at (146.28 ¥), and recorded the highest level at (146.34 ¥).
• The Japanese yen ended Thursday’s trading down 0.7% against the US dollar, in the second consecutive daily loss, within the corrections from a two-week high of 144.45 yen.
Weekly trading throughout this week’s trading, which officially ends when prices settle today, the Japanese yen is up so far by about 1.5% against the US dollar, on track to achieve the first weekly gain within the last three weeks.
A special session of Japan’s parliament was held on Friday to discuss the Japan bank’s unexpected decision to raise interest rates last month and the central bank’s abrupt shift toward normalizing monetary policy.
Japan Bank Governor Kazuo Ueda told lawmakers that the interest rate hike at the July meeting is in line with the central bank’s economic outlook.Oeda added that the central bank is ready to adjust monetary policy if the economy moves as planned.
Oeda explained that the recent adjustments in monetary policy were appropriate, and warned of sudden movements in the foreign exchange market and their negative impact on prices and wages in the country.
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Ueda said that excessive fluctuations in the exchange rate affect inflation expectations, and that inflation risks remain bullish, and Oeda stressed that monetary easing should be adjusted if inflation matches expectations.
It is difficult to determine the exact level of neutral interest rates, and he stresses that a neutral interest rate can be achieved if the data matches expectations until 2026.
Inflation in JapanGovernment data showed on Friday that the consumer price index excluding fresh food rose by 2.7% annually in July, according to market expectations up by 2.7%, and the index recorded a rise of 2.6% in June.
The acceleration of the CPI for the third consecutive month, approaching the 3.0% barrier, undoubtedly increases inflationary pressures on monetary policymakers at the Bank of Japan.
The data reinforces the prospects that the Bank of Japan will continue to normalize monetary policy over the coming meetings before the end of this year.
Following Ueda comments and inflation data, traders still see a low chance of a Japanese rate hike at the October meeting, but the odds of a further increase in Japanese interest rates in December rose to more than 70%.
