TOKYO : Japan’s improving economic conditions and receding U.S. recession worries are likely to bring prospects of a December or January interest rate hike back into view, even as a new government complicates the politics around monetary policy.
A significantly dovish shift in rhetoric from Bank of Japan Governor Kazuo Ueda and surprising opposition to further rate hikes by new Prime Minister Shigeru Ishiba have cast doubts over when the central bank would next tighten policy.
Despite the recent change in mood around policy, however, sources and analysts see a growing economic case for the central bank to take Japan’s rates further away from historic lows and for the BOJ to step up its hawkish signalling.
While the BOJ is expected to keep interest rates steady at its Oct. 30-31 meeting, it will roughly maintain its forecast for inflation to stay around its 2 per cent target through March 2027, say three sources familiar with its thinking.
Former BOJ official Nobuyasu Atago, who is currently chief economist at Rakuten Securities Economic Research Institute, said the central bank is unlikely to want to wait until March to raise rates again.
“Recent developments surrounding the U.S. economy, including receding risks of a severe downturn, will work in favour of further BOJ rate hikes. From that perspective, the chance of a near-term rate increase is heightening,” Atago said.
“I don’t think the Ishiba administration would push back against the BOJ’s efforts to raise interest rates.”
With inflationary pressure from import costs subsiding, Ueda has said the central bank can “afford” to spend time scrutinising risks, such as unstable markets and U.S. economic uncertainties, in timing the next rate hike.
But that does not necessarily mean the BOJ will stand pat for a prolonged period, especially if conditions for a rate hike fall into place, the sources say.
Many BOJ policymakers see the
