By Leika Kihara
TOKYO (Reuters) -Japanese business mood is improving and corporate profits remain high even as U.S. tariffs weigh on exports, Bank of Japan Deputy Governor Shinichi Uchida said, signalling confidence that conditions for another interest rate hike was falling into place.
Uchida reiterated that the central bank will continue to raise interest rates if economic and price developments move in line with its forecasts, though it would scrutinise data without any pre-set idea.
“Judging from our tankan survey, corporate sentiment is positive overall with manufacturers’ sentiment improving on the view Japan’s trade agreement with the U.S. has reduced uncertainty,” Uchida said in a speech to an annual meeting of securities firms on Thursday.
While some manufacturers are experiencing a hit to their profits from U.S. tariffs, corporate revenues remain at high levels overall, he added.
The remarks came in the wake of Wednesday’s tankan quarterly survey that showed confidence among big Japanese manufacturers improved for the second straight quarter.
Market players have been closely watching Uchida’s comments for any clues on how soon the BOJ will resume a rate-hike cycle that has been paused due to uncertainty over the economic fallout from U.S. tariffs.
A hawkish board split at the BOJ’s September meeting and calls for a near-term rate hike by a dovish policymaker have led markets to price in over a 60% chance the bank will hike rates to 0.75% from 0.5% at its next policy meeting on October 29-30.
“Uchida’s comments about receding uncertainty over U.S. tariffs show the BOJ is heading in the direction of further rate hikes,” said Takeshi Ishida, a strategist at Kansai Mirai Bank.
“But there were no clear hints, so it’s hard to judge the timing of the next rate hike just from these comments,” he said.
Uchida said Japan’s economy was improving moderately with underlying inflation expected to re-accelerate after a brief period of stagnation.
He reiterated that high uncertainty over overseas economic developments was among risks to Japan’s economic outlook.
The BOJ ended a massive, decade-long stimulus programme last year and raised rates to 0.5% in January, on the view that Japan was on the cusp of durably hitting its inflation target of 2%.
While inflation has exceeded 2% for more than three years, Governor Kazuo Ueda has stressed the need to tread cautiously in raising borrowing costs to ensure price rises are driven by wage gains and robust domestic demand.
Ueda is scheduled to deliver a speech to business leaders in Osaka, western Japan, on Friday and take questions from some of the executives.
(Reporting by Leika Kihara; additional reporting by Makiko Yamazaki; Editing by Christian Schmollinger and Shri Navaratnam)
Comments