Market News

(Bloomberg) -- Bank of Japan Governor Kazuo Ueda kept the possibility of an April interest rate hike on the table after leaving policy unchanged Thursday amid uncertainty over the impact of the Middle East conflict on the economic outlook.

Speaking at a press briefing after the central bank’s decision he said that downward pressure on the economy stemming from the impact of the hostilities would likely be temporary.

“Even if economic growth were to decline, if that development is temporary and there’s not so much impact on the trajectory of the price trend then of course it will be possible to raise interest rates,” he said.

The governor’s comments came after the BOJ left its benchmark interest rate untouched at 0.75% at the conclusion of a two-day gathering. The outcome matched the expectations of all 51 economists surveyed by Bloomberg.

The war in Iran has put the BOJ in a delicate position of trying to judge whether the risk of a supply shock hitting the economy would outweigh the potential for soaring oil prices to accelerate price growth.

With his comments, Ueda appeared to suggest that while carefully monitoring developments, the BOJ was largely prepared to look through any short-term impact.

The yen had touched 159.90 against the dollar earlier Thursday, but it strengthened as far as 159.04 after Ueda’s comments, a rare case of the governor giving little for yen bears to jump on during his briefing. Earlier the Nikkei 225 Stock Average closed down 3.4% for the day while Japanese government bond yields rose across all tenors.

“Ueda’s remarks signal that the BOJ will keep raising rates steadily and that the BOJ isn’t ruling out a chance for a rate hike in April,” said Jin Kenzaki, chief Japan economist at Societe Generale. “One key question is whether financial markets will still be volatile by the time of the April meeting.”

What Bloomberg Economics Says...

“We think the board will judge that acting to demonstrate its commitment to price stability carries limited cost and Ueda may signal an April hike is a possibility.”

— Taro Kimura, economist

Central banks around the world are keeping watch on elevated price levels as they are increasingly expected to turn toward tightening. The Reserve Bank of Australia raised rates earlier this week, and on Wednesday the US Federal Reserve kept policy unchanged. Market players see the European Central Bank hiking rates by June, according to pricing in the overnight swaps market.