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BoJ interest rate hike unlikely for "quite some time"

BoJ interest rate hike unlikely for

The Bank of Japan (BoJ) has no plans to raise interest rates for the foreseeable future, according to Governor Haruhiko Kuroda.

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By Jackson Lewis 03.09.2018

The Bank of Japan (BoJ) has no plans to raise interest rates for the foreseeable future, according to Governor Haruhiko Kuroda, who revealed in an interview over the weekend that recent steps to increase the flexibility of policy was not the groundwork for upcoming policy normalization.

The BoJ has been making moves to keep interest rates in check with its recent adjustment of policy to enable the flexible purchase of stocks and bonds. It also allowed the ten-year government bond yield to fluctuate more and hover around 0%, a measure that will help the bank support “extremely low” rates in the medium to long term.

Reuters analysts believed that the BoJ’s pledge in July was the start of a broader theme of policy normalization and a sign that the bank may pivot away from its massive stimulus, though the majority admitted that this may not occur for some time.

Kuroda has now poured cold water on speculation that an interest rate hike is imminent after saying that it is unlikely to happen soon. He said in an interview with Yomiuri Shimbun published on Sunday: "There is no thought about raising [rates] for quite some time."

The BoJ remains some way off from hitting its 2% inflation target despite a strong stimulus that has seen years of asset buying and incredibly low interest rates. Despite this struggle, Kuroda said that the bank is still confident of achieving its goal and that it would do so by the end of his current term in 2023. When asked whether this would be the case, he said “of course.”

Japan is currently enjoying robust economic growth, and this could allow the central bank to finally move away from its massive stimulus program, according to former board member Koji Ishida. He told Reuters that this may even happen before inflation reaches the 2% target.

Reuters analysts were not the only third parties expecting the BoJ to take more steps to support the normalization of policy later this year, as another former board member recently claimed that the decision to pursue a more flexible policy is not an isolated one and points to a wider policy push soon.

While Japan focuses on domestic policy, China continues to analyze the impact of its ongoing trade war with the US. A Chinese Communist Party journal said on Saturday that the conflict could lead to financial instability but that it would not have a detrimental impact on its current stable rate of growth.

The journal said that industries exposed to the tit-for-tat tariff battle directly will come under greater pressure, while friction could undermine “trade and investment” and “employment and people’s livelihoods”. It added: “But at the same time, we must see that the fundamentals of China’s economic development have not changed. China’s economic structure has been significantly improved in recent years, which has effectively improved its ability to withstand external shocks.”

Additionally, the journal said the US had “provoked” trade tensions and that China would take proactive steps to support the economy and mitigate risks. These steps include a new investment drive in core tech and R&D, the promotion of market diversification and the optimization of its industrial structure. China will also be able to call on fiscal policies to offset any negative impacts of a protracted trade saga.

“Unblocking the transmission mechanism of monetary policy and guiding funds to invest in the real economy, particularly small and micro-enterprises, can alleviate the problem of difficult or expensive financing and strengthen the ability of the financial industry and the real economy to withstand risks,” the journal said.

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