A Bank of Japan policy-maker voiced caution Thursday about the outlook for the U.S. economy and global markets in the wake of the subprime-mortgage crisis, but warned that Japan's economy runs the risk of overheating if the central bank postpones interest-rate hikes for too long.
Miyako Suda, considered a relative hawk on the BOJ's nine-member board, said the bank will look at economic and price conditions and the "uncertainty" surrounding them when setting interest rates. But the bank, she added, should maintain a forward-looking approach and not be constrained by the actions of central banks elsewhere. Suda's comments, in a speech to business leaders in Mie prefecture, may add to speculation that the bank wants higher rates but is willing to tread cautiously until global markets recover from the turmoil caused by the troubled U.S. housing sector. A week ago, the BOJ held interest rates steady at 0.50% its latest policy board meeting. Gov. Toshihiko Fukui signaled after the meeting that the central bank may be resigned to keep rates on hold for now because of global credit-market woes stemming from the U.S. subprime-mortgage crisis. The BOJ "must not let our guard down, as markets are likely to remain prone to instability," Suda said. How problems in the U.S. subprime mortgage market were spread to worldwide financial markets has become clearer over recent weeks, but "we can't predict at all when the fog over those problems will clear up," Suda told a news conference later in the day. "While I feel that the fog may dissipate more quickly than expected, it's also possible it will thicken." But her overall comments indicate that she sees the need to bring Japan's low rates up to "normal" levels over time. Suda said she can't tell what levels are normal now, though some analysts estimate they are around 2%. "If we adjust interest rates too slowly, the risks of economic overheating will increase," Suda said. "To avoid falling behind the curve, I think it's desirable if we act somewhat early." | |
| A Bearish Cue? | |
Market players took Suda's remarks as a bearish cue, with Japanese government bonds extending their losses and 10-year yields climbing to their highest level since mid-August after her speech. "Given her speech, she may join (BOJ board memeber Atsushi Mizuno) in proposing a rate hike at the BOJ's November meeting," said Susumu Kato, chief economist at Calyon Securities in Tokyo. "If she joins Mizuno in voting for a rate hike, it could have a strong effect on" the central bank's governor, he said. Suda meanwhile cited a "high possibility" that the subprime crisis and persistent U.S. housing market slump would delay a U.S. economic recovery, but said the crisis will have little direct impact on Japan. "I don't think (the Japanese economy) will divert from our standard scenario" that it will keep expanding moderately, backed by worldwide growth, she said. In reaction to the crisis, the U.S. Federal Reserve Bank earlier this month cut its key federal funds rate by 50 basis points, and the European Central Bank stepped back from an anticipated rate hike. Those moves were seen to have tied the BOJ's hands even if it had wanted to raise rates. But Suda said the BOJ will keep an independent course. "There's no way our monetary policy will be constrained by foreign central banks' policies," she said. "What matters is not whether the (Fed) has changed its policy. The point in making policy decisions will be on how instability in the financial markets and a slowdown in the U.S. economy will affect" the BOJ's outlook for the Japanese economy. Even if a U.S. economic downturn means a drop in Japanese exports to the U.S., "I don't think that will have any major impact on the outlook" for overall Japanese exports, Suda said, given growing sales of Japanese products in China, Europe and elsewhere. Commenting on falling Japanese consumer prices, Suda said it could be due to Japanese businesses' high productivity and efforts to cap workers' paychecks, as well as imports of cheap products. But she predicted that prices will rise, perhaps even at a quicker-than-expected rate, in the future given the high costs of imported oil, low chances of Japanese labor costs falling more quickly, and strong domestic demand. Some have warned that persistent low rates can cause asset bubbles -- such as the credit bubble that recently burst in the U.S., which some say was caused in part by the yen carry trade. "It's important to make efforts to pre-empt bubbles," Suda said. "In order to do so, it's essential to act early in a forward-looking manner and acknowledge risks before they" turn serious. | |
No comments:
Post a Comment