Bank of Japan's Fukui says not ruling out rate hike by year-end

Bank of Japan governor Toshihiko Fukui said he is not ruling out a possible interest rate increase before the end of the year, noting that the Japanese economy is expected to continue its recovery led by solid domestic demand and brisk exports. He was speaking after the central bank's policy board voted unanimously to keep the overnight call rate target unchanged at 0.25 pct until its next meeting on October 31, a move that had been widely expected. "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 after the policy board concluded its two-day meeting. "But we do not manage the (monetary) policy by presetting a specific timing (for any future policy action), and we are completely open to any possibility," he said. While flagging a possible rate hike before the end of this year, Fukui reiterated that the central bank will steer monetary policy gradually rather than rush into adjusting interest rates. "The recent series of economic data, including our Tankan survey, have not prompted us to change our policy," Fukui said. "And with regard to any adjustment in the interest rates, we will do it slowly while carefully assessing developments in economic activity and prices," Fukui said. "In this context, the possibility is rather high that extremely low interest rate levels will be sustained for the time being," he added. Turning to the economy as a whole, Fukui said Japan continues to enjoy a well-balanced recovery and is expected to extend a self-sustained recovery going forward. "Since a positive correlation of production, income and spending is at work, the possibility is high that Japan will see a long-lasting recovery," Fukui said. Fukui said he remains optimistic about the outlook for prices in the near term. "As the output gap no longer exists, the year-on-year rate of change in consumer prices is projected to continue to follow a positive trend going forward," he said. The government last month said the core consumer price index, which excludes volatile prices of fresh food but includes energy prices, rose 0.3 pct from a year earlier in August, the third straight monthly increase. However, based on US standards which exclude food and energy costs, Japan's CPI fell 0.4 pct year-on-year in August, down for the eighth straight month. While also expressing some worry over the state of the US economy, Fukui thinks the US will likely be able to avoid a worst-case scenario. "The US economy is slowing down, but this has not posed any material impact on exports to that country from Japan," Fukui said. He also said a slowdown in the US housing market "is gaining momentum" but it has not developed to an extent that it would affect other sectors there. "In other word, the US economy is on the path to achieve a soft landing," Fukui added The BoJ chief also said it is important to assess if the global economy has sufficient strength and buffer, even if the slowdown in the US housing sector develops beyond wild expectations. Referring to the recent trend in the foreign exchange market, Fukui said the BoJ clearly understands that the euro has been firming not only against the yen but also against the dollar, but added that it is better off not making any specific comments on rate movements further. Turning to lingering political tension in North Korea following the launch of its nuclear weapons tests Monday, Fukui said this is "not likely to pose significant impact on the Japanese economy, given the limited trade volume" between Tokyo and Pyongyang. "But as geopolitical risks could, in theory, affect economies and prices, we would like to watch if (corporate and consumer) sentiment changes on the latest geopolitical risk," Fukui said.