Japan keeps short-term rate steady amid dissent

The Bank of Japan decided yesterday to start selling its holdings of risky assets and two board members voted against keeping interest rates steady, suggesting the bank would phase out its massive monetary stimulus sooner than first thought.

- LEIKA KIHARA

While the central bank kept short-term interest rates at 0.5%, board members Hajime Takata and Naoki Tamura proposed, unsuccessfully, a hike to 0.75% in a move markets saw as a prelude to a near-term increase in borrowing costs.

“The dissent from Takata and Tamura highlights growing hawkish pressure inside the BoJ,” said Charu Chanana, chief investment strategist at Saxo.

“While the majority still favour a steady path, the presence of two board members voting against today’s decision suggests the debate is tilting toward quicker normalisation”

The hawkish shift surprised markets and put investor focus back on how soon the BoJ will next raise interest rates, even as uncertainty over the global outlook and domestic politics grows.

“Real interest rates remain very low,’ BoJ Governor Kazuo Ueda said in a news briefing after the decision. “If our economic and price forecasts materialise, we will continue to raise interest rates in accordance to improvements in the economy and prices”

At the two-day meeting that ended yesterday, the BoJ decided to sell its holdings of exchange-traded funds (ETF) in the market at an annual pace of around ¥330 billion ($2 billion).