By Leika Kihara TOKYO (Reuters) -The Bank of Japan's cautious governor has dropped unusually hawkish hints of an interest rate hike in December or January next year, with the timing likely swayed not just by wage momentum but by moves in the yen. The central bank kept interest rates steady at 0.5% on Thursday as expected, but Governor Kazuo Ueda said the likelihood of its baseline scenario materialising has heightened - language he had used in the past to signal a rate hike was imminent. While warning o ...

Group 1 - Asian stocks experienced volatility, fluctuating between gains and losses following a deal announcement between U.S. President Trump and Chinese President Xi regarding rare earths and tariffs [1][2] - Trump stated that tariffs on Chinese imports would be reduced in exchange for China resuming U.S. soybean purchases and maintaining rare earth exports [2] - Despite initial optimism, markets sold off due to concerns that the tariff agreement may not be sustainable, with MSCI's Asia-Pacific index dropping 0.5% after an earlier increase [3] Group 2 - European market futures showed mixed results, with pan-region futures up 0.2% and German DAX futures rising 0.3%, while FTSE futures slipped 0.1% [4] - Analysts suggest that the recent meeting represents a tactical pause rather than a significant breakthrough in trade relations [4] - Market sentiment remains skeptical about a comprehensive agreement, with potential for renewed tariff threats if the tone from U.S. officials shifts [5] Group 3 - The Bank of Japan maintained its interest rates but indicated a willingness to increase borrowing costs if economic conditions align with projections [6] - The Nikkei 225 index showed fluctuations but ultimately closed at a record high following the Bank of Japan's decision [6] - The yen weakened against the U.S. dollar and euro, reaching its lowest levels since February, influenced by comments from U.S. Treasury Secretary regarding rate hikes [7]

Group 1 - Bank of Japan (BOJ) Governor Kazuo Ueda indicated that the central bank will analyze various data, including information from Washington, to decide on potential interest rate hikes in October [1][4] - Ueda noted the resilience of global and U.S. economies, while acknowledging that the impact of U.S. tariffs may soon become apparent [2] - The International Monetary Fund (IMF) raised its 2025 global growth forecast, attributing the more benign tariff shocks to a potential slowdown in output due to renewed U.S.-China trade tensions [3] Group 2 - The BOJ ended a decade-long stimulus program last year and raised rates to 0.5% in January, believing Japan was close to achieving its inflation target [5] - With inflation exceeding the 2% target for over three years, the BOJ is prepared to continue raising rates if economic conditions improve [5] - Market expectations for a rate hike in October increased after two BOJ board members proposed a rate increase in September, although these expectations diminished following the election of Sanae Takaichi as Japan's first female prime minister [6] Group 3 - Analysts generally expect the BOJ to raise rates to 0.75% by January next year, although there is some disagreement regarding the exact timing [7]

Core Viewpoint - The political landscape for the Bank of Japan (BOJ) is expected to become more challenging for Governor Kazuo Ueda following the leadership victory of Sanae Takaichi, who is critical of interest rate hikes. This shift may impact the BOJ's policy decisions moving forward [6]. Group 1: Political Environment and Leadership Changes - Takaichi's victory has led to a significant reduction in traders' expectations for a BOJ rate hike in October, dropping from a 68% chance to just over 20% [6]. - Ueda's ability to raise interest rates may be hindered by Takaichi's influence, as she has expressed a desire for cautious monetary policy [7][9]. - The appointment of former finance ministers to senior party positions suggests that Takaichi may not pursue aggressive spending plans without approval from the finance ministry [10]. Group 2: Economic Indicators and Market Reactions - Recent solid economic data had previously increased expectations for an October rate hike, but Takaichi's win has diminished that likelihood [3]. - Analysts are concerned that if Ueda does not raise rates, it may signal a response to Takaichi's victory, potentially leading to further yen depreciation [4]. - The market reacted to Takaichi's comments with initial weakness in the yen and an increase in long-term bond yields, although the situation stabilized shortly thereafter [9]. Group 3: BOJ's Policy Direction and Challenges - Ueda has made significant strides in unwinding the BOJ's extensive stimulus program, but the political dynamics introduced by Takaichi may complicate future policy changes [2][12]. - There are concerns that Takaichi's approach could lead to a reevaluation of the BOJ's independence, particularly if she seeks to influence monetary policy decisions [6][11]. - Economists believe that while Ueda has performed well in managing the BOJ's policies, the challenges are far from over, especially with potential adjustments needed in response to Takaichi's fiscal strategies [16].

Core Viewpoint - The Bank of Japan (BOJ) is on track to achieve its inflation target, but uncertainties in the global economy may hinder wage increases, leaving the decision on interest rate hikes open for October [1][2]. Economic Outlook - Ueda highlighted various uncertainties affecting Japan's economic outlook, including signs of labor market weakness in the U.S. and the potential impact of higher U.S. tariffs on Japanese corporate profits [2][6]. - The BOJ is prepared to raise interest rates if economic conditions align with forecasts, but external factors may lead firms to prioritize cost-cutting over wage increases [2][6]. Market Reaction - Following Ueda's comments, the Japanese yen weakened by 0.3% to 147.72 per U.S. dollar, as market participants interpreted the remarks as reducing the likelihood of an October rate hike [3]. - Analysts suggest that a rate hike in December is now more probable than in October due to the lack of clear signals for an immediate increase [3]. Impact of U.S. Economic Conditions - The ongoing U.S. government shutdown is expected to delay the release of key economic data, complicating the BOJ's decision-making process regarding interest rates [4]. - Ueda acknowledged that while the delay in U.S. data is a significant issue, the BOJ will analyze other available data to inform its decisions [4]. Future Considerations - Ueda plans to gather insights from discussions with policymakers and bankers during the upcoming IMF meeting, indicating that the global economic outlook will influence the BOJ's decision on potential rate hikes [5]. - The BOJ is aware of the significant uncertainties regarding how tariffs may impact global, U.S., and Japanese economies, but it does not need to wait for all data to assess risks [6][7].

Economic Outlook - Bank of Japan Governor Kazuo Ueda indicated that inflation is on track to meet the bank's target, but global uncertainties may hinder firms from increasing wages, leaving the decision on interest rate hikes open for October [1][2] - Ueda highlighted various uncertainties affecting Japan's economic outlook, including signs of labor market weakness in the U.S. and the anticipated impact of higher U.S. tariffs on Japanese corporate profits [2][3] Monetary Policy - Ueda stated that the future trajectory of the U.S. economy and its monetary policy could significantly influence Japan's economy and prices, emphasizing the need for close monitoring of the situation [3][5] - The Japanese yen weakened by 0.2% to 147.60 per U.S. dollar following Ueda's comments, as market participants interpreted them as reducing the likelihood of an interest rate hike in October [3][6] Market Reactions - Analysts noted that there was no clear indication from the BOJ's communication suggesting preparation for an October rate hike, with predictions leaning towards a more likely rate increase in December [4][6] - A split in the BOJ's board during the September meeting and calls for a near-term rate hike have led markets to price in over a 60% chance of a rate increase from 0.5% to 0.75% at the upcoming policy meeting on October 29-30 [6] Corporate Resilience - Ueda mentioned that Japan's economy has been managing the impact of U.S. tariffs effectively so far, with many companies benefiting from high profits accumulated previously [6]

Interest Rate Policy - Egypt has the potential for a fourth interest-rate cut this year [1] - A possible fuel price hike may lead to renewed caution regarding interest rate cuts [1] Economic Factors - Slowing inflation provides Egypt with flexibility in its monetary policy [1] - An appreciating currency supports the possibility of further interest rate cuts [1]

Core Viewpoint - The Bank of Japan (BOJ) is expected to revise its economic and inflation forecasts upward in its upcoming quarterly review, potentially leading to an interest rate hike in October [1][3]. Economic Forecasts - The BOJ's current forecast anticipates a 0.6% economic expansion for the fiscal year starting in April and a 0.7% growth in fiscal 2026 [5]. - Recent data indicates Japan's economy grew at an annualized rate of 2.2% in the second quarter, surpassing initial estimates due to strong consumption [5]. Interest Rate Outlook - There is a 50% probability of a rate hike during the BOJ's policy meeting on October 29-30, coinciding with the release of new growth and inflation forecasts [1]. - A potential 25-basis-point rate increase is considered manageable for economic growth, as borrowing costs would remain below neutral levels [3]. Risks and Considerations - BOJ Governor Kazuo Ueda emphasizes the need to assess the impact of U.S. tariffs on Japan's economy and wage outlook before deciding on rate hikes [2]. - If the BOJ focuses on downside risks, such as weaknesses in exports and corporate profits, it may delay rate hikes until March next year [4]. Influencing Factors - The upcoming "tankan" business survey, scheduled for October 1, could significantly impact the BOJ's decision regarding interest rates [6].

Core Insights - The Federal Reserve's rapid interest rate hikes, starting in March 2022, have had unforeseen impacts on several well-known, high-quality businesses [1] Group 1 - The interest rate hikes were the fastest in history, indicating a significant shift in monetary policy [1]