Bank of Japan Pauses Rate Hikes, Eyes U.S. Policy Changes

On Thursday, a member of the Bank of Japan's Policy Board announced that the central bank is currently in a phase where it can pause interest rate hikes. This pause, however, is expected to be temporary, with the bank planning to resume the tightening cycle after a period of observation. The member made these remarks during a speech in Mie Prefecture, highlighting that Japan is gradually approaching its price stability target.

To sustain this momentum, the member emphasized the importance of maintaining the current accommodative policy stance. The pause in rate hikes is seen as a strategic move to evaluate the impact of external factors, such as U.S. policy changes, on the Japanese economy before resuming the tightening cycle. This approach underscores the bank's focus on ensuring that monetary policy adjustments are well-calibrated and aligned with the broader economic outlook.

The member also noted that there is high uncertainty in both directions, suggesting that the Bank of Japan may need to flexibly return to the interest rate hike cycle to respond to changes in U.S. policies. The member advised against being overly pessimistic and advocated for flexible policy implementation.

This assessment comes as Japan's inflation rate nears the central bank's 2% target, indicating that the economy is on track to achieve price stability. The member's remarks suggest that while the bank is taking a cautious approach to avoid disrupting the economic recovery, it remains committed to normalizing monetary policy in the medium term.