Analysis-BOJ faces fresh challenge as politics, yen complicate rate hikes

Shigeru Ishiba News

Analysis-BOJ faces fresh challenge as politics, yen complicate rate hikes
Bank Of JapanRate HikesMonetary Policy
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Bank of Japan Governor Kazuo Ueda's efforts to lift rock-bottom borrowing costs face fresh challenges as a yen rebound and the new political leadership's...

TOKYO - Bank of Japan Governor Kazuo Ueda 's efforts to lift rock-bottom borrowing costs face fresh challenges as a yen rebound and the new political leadership's preference for loose monetary policy raise the hurdle for rate hikes .

"I don't think the remarks were intended to apply huge pressure on the BOJ. Rather, Ishiba probably had the election in mind," said Katsuhiro Oshima, chief economist at Mitsubishi UFJ Morgan Stanley Securities. "He was seen by markets as a hawk, so may have wanted to fine-tune that image a little bit."

The bold shift to a tightening bias, however, hit a snag this week with Ishiba's new cabinet reaffirming with the BOJ a 2013 statement that commits both sides to focus on reflating a stagnant economy. However, with the potential for political curve balls heading into the election, the BOJ may use overseas risks, such as a slowing U.S. economy, as an argument for not raising rates straight away.

Ishiba's approval ratings stood at 50.7% in a poll by Kyodo news agency conducted on Oct. 1-2, lower than the debut ratings of the previous three administrations, suggesting a tough battle in the election. "If the political turmoil drags on, that could unravel the BOJ's strategy to hike rates up to around 0.75% next year," he said. "At heart, the BOJ probably wants to move swiftly."A strike by dockworkers on the U.S. East Coast and Gulf Coast that disrupted much of the nation's ocean shipping this week ended on Thursday, but a key issue driving labor unrest across the continent - the growing use of automation - was unresolved.

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