Bank of Japan leaves door open to rate rise this year

Bank of Japan governor Toshihiko Fukui said Friday there was still a chance of another interest rate rise this year after the central bank held fire for a third straight month.
The yen rallied away from 10-month lows against the dollar in the wake of his comments, although some analysts played down the likelihood of another round of monetary tightening this year while inflation remains subdued.
The Bank of Japan's nine-member policy board unanimously agreed earlier to leave the central bank's benchmark lending rate unchanged at 0.25 percent, as expected at the close of a two-day meeting Friday "If I am asked whether or not there is any chance for another rate hike before the end of this year, I would say I do not rule this out," Fukui told a press conference.
He said the central bank would steer monetary policy gradually rather than rush into adjusting interest rates again after the end of the era of virtually free credit in July. "With regard to any adjustment in interest rates, we will do it slowly while carefully assessing developments in economic activity and prices.
"In this context, the possibility is rather high that extremely low interest rate levels will be sustained for the time being," he added.
The dollar slumped to 119.08 yen in the wake of the remarks, down from 119.38 yen before Fukui spoke and well off Wednesday's 10-month high of 119.84. The Bank of Japan in July raised interest rates for the first time in almost six years, by a quarter-point to 0.25 percent, and signalled it would move cautiously with further monetary tightening.
Takuji Aida, chief economist for Japan at Barclays Capital, said that although Fukui's remarks had caught the market's attention, the central bank chief had still not given any clear lead about when rates will rise next. There was little worry of the Japanese economy overheating, Aida said, while consumer price inflation remains moderate and the US economy is slowing.
"So we do not think that the BoJ will raise rates this year but next year we think the BoJ will be very hawkish," he said, predicting four quarter-point rate rises starting in February. Asia's largest economy had been trapped in a deflationary spiral since the late 1990s but is now well on the road to recovery. Japan's current economic expansion has equalled its longest boom period since the end of World War II, the government said Thursday.