July 31 (Reuters) - The Bank of Japan kept its interest rates steady on Friday, while reiterating its willingness to raise borrowing costs further if inflation risks increase.
At the end of its two-day policy meeting, the central bank voted 8-1 to keep its short-term policy rate at 1%. Board member Hajime Takata dissented, arguing for a 25-basis-point increase to 1.25%.
COMMENTS
MARCEL THIELIANT, HEAD OF ASIA-PACIFIC, CAPITAL ECONOMICS, SINGAPORE:
"The BOJ's outlook report was hawkish and we're sticking
to our non-consensus view that the central bank will lift interest rates to 2% by the end of next year.
"The decision itself wasn't unanimous because arch hawk Hajime Takata once again dissented in favour of a rate hike just as he did in April. That's remarkable given that the bank just raised rates at its June meeting.
"Nonetheless, in contrast to what we had anticipated, the bank judged that risks to activity were 'generally balanced' despite the renewed increase in crude oil prices in recent weeks. And strikingly, the board barely revised their forecasts for inflation excluding fresh food and energy at all.
"The bank still believes that risks to inflation are tilted to the upside. Most importantly, for the first time ever it now believes that 'underlying inflation' could rise above its 2% target, which signals a more severe degree of concern." MASATO KOIKE, SENIOR ECONOMIST, SOMPO INSTITUTE PLUS, TOKYO:
"I got the impression that the statement was somewhat hawkish. In particular, the section on prices and the 2% inflation target stood out.
"The wording suggested that inflation is 'approaching 2%', and it also emphasized the importance of confirming whether inflation will become firmly anchored at 2%. Given that inflation appears to be getting closer to that 2% level, I think this represents a step forward.
"Since interest rates are already at historically high levels, I think there is still a need to wait and assess conditions for a certain period. However, based on today's outcome, my impression is that the likelihood of an October hike has increased relative to December." HIROFUMI SUZUKI, CHIEF FX STRATEGIST, SMBC, TOKYO:
"The decision to keep rates unchanged was in line with expectations, given that the BOJ had only just raised rates in June. However, board member Takata's dissent in favour of another consecutive rate hike was somewhat unexpected.
"The BOJ generally revised up its economic growth outlook, while lowering its near-term inflation forecasts. These revisions are unlikely to undermine the expected path of future rate hikes.
"The BOJ is expected to continue raising rates at a gradual pace. However, with volatility in USD/JPY increasing, we think that we are entering a phase in which further yen depreciation could prompt markets to price in an earlier rate hike."
(Reporting by Reuters Asia markets team; Editing by Sherry Jacob-Phillips)
