By Kentaro Sugiyama and Leika Kihara
TOKYO (Reuters) -Bank of Japan Governor Kazuo Ueda said on Tuesday he told Prime Minister Sanae Takaichi the central bank was gradually raising interest rates to guide inflation smoothly towards its 2% target and ensure the economy achieves sustainable growth.
The premier did not make any request on monetary policy, Ueda told reporters after his first bilateral meeting with Takaichi since she took office last month.
“We had candid, good talks on economic, price, financial developments as well as on monetary policy,” he said of the meeting, which has been closely watched for hints on how soon the central bank will resume its rate-hike cycle.
On the timing of the BOJ’s next rate hike, Ueda said only that the central bank will make an “appropriate” decision with an eye on data and information that become available.
“What stood out was Ueda’s comment that there was no request from the premier on policy. The governor’s explanation also wasn’t different from his past remarks, suggesting that Takaichi didn’t push back too fiercely against a near-term rate hike,” said Takeshi Ueno, chief economist at NLI Research Institute.
“Markets will look for hints on whether the BOJ could hike rates this year through comments from both the government and central bank,” he said.
The inauguration of Takaichi, who is known as an advocate of expansionary fiscal and monetary policy, has complicated the BOJ’s efforts to gradually push up still-low borrowing costs.
While Ueda has signalled the possibility of raising interest rates as soon as next month, Takaichi had voiced displeasure over the idea and urged the BOJ to cooperate with government efforts to reflate the economy.
Ueda said he told the premier at Tuesday’s meeting a mechanism in which prices and wages rise in tandem was reviving in Japan, thanks to government and BOJ efforts to prop up growth.
“I explained that against this backdrop, the BOJ is gradually adjusting the degree of monetary support to make a smooth, stable landing towards its 2% inflation target,” Ueda said. When asked how Takaichi responded, Ueda said: “She seem to have acknowledged the point I made.”
Ueda said he also told the premier the BOJ’s efforts to steer inflation stably toward 2% would ensure the economy achieves sustainable, long-term growth.
MEETING DISCUSSED CURRENCY MOVES
The bilateral meeting came in the wake of the yen’s slide to a nine-month low that drew alarm from Japan’s finance minister over volatile currency moves.
Ueda said the two discussed currency moves, adding that it was desirable for exchange rates to move stably reflecting economic fundamentals.
“We hope to closely monitor currency market developments and their impact on the economy, coordinating closely with the government,” Ueda said.
The BOJ chief typically holds a bilateral meeting after the inauguration of a new prime minister. The two also meet about once every quarter to discuss economic and price developments.
The BOJ ended a decade-long, massive stimulus last year and raised rates to 0.5% in January. It has kept rates steady since then to scrutinise the economic impact of higher U.S. tariffs.
Market bets the dovish prime minister will deliver big spending and pressure the BOJ to go slow in raising rates have prodded investors to sell yen and Japanese government bonds.
With inflation exceeding its 2% target for well over three years, many market participants expect the BOJ to raise rates to 0.75% from 0.5% either in December or January. Ueda dropped unusually hawkish hints last month of a rate hike.
But Takaichi’s policy adviser warned against a near-term rate hike after data on Monday showed Japan’s economy contracted in the third quarter on soft consumption and exports.
(Reporting by Kentaro Sugiyama and Leika Kihara; Additional reporting by Noriyuki Hirata; Editing by Christian Schmollinger and Shri Navaratnam)
