(Bloomberg) — The Bank of Japan is set to discuss Thursday whether an interest rate hike is needed, officials’ views show, amid growing speculation about a January interest rate hike. There is a possibility of rate increase.
The Board of Governor Kazuo Ueda is expected to leave its benchmark rate unchanged at 0.25% at the end of a two-day meeting, according to traders’ views reflected in the latest overnight-index-swap rates. More than half of economists now predict a rate hike in January, according to a Bloomberg survey this month, while 44% still expect it to happen this week.
People familiar with the matter told Bloomberg earlier this month that BOJ officials find it less costly to wait before raising borrowing costs. The board’s decision, which usually comes around noon, is set to end several weeks of intense speculation over whether the central bank might move further this week. At one time traders saw a two-thirds possibility of a change in policy.
“The BOJ is in no rush to raise rates,” said Mari Iwashita, executive economist at Daiwa Securities. “Even though the economy and inflation are moving as expected, I don’t see any strong sense from the BOJ this time that they will move.”
Still, many investors, well aware of the central bank’s history of surprises, are especially cautious after a rate hike in July that set the stage for global market declines. Some BOJ officials are not against a rate hike this fall, if it is proposed, according to people Bloomberg spoke to. This points to a possible change in voting behaviour. In January 2007, three board members proposed increasing rates, laying the groundwork for the following month’s increase.
The BOJ’s decision comes just hours after the Federal Reserve’s expected rate cut. The yen has weakened against the dollar over the past two weeks as more investors expect no BoJ rate hikes this month. That said, the bank will likely continue to suggest borrowing costs will rise going forward to avoid accelerating the yen’s decline too much.
After the release of the policy statement, attention will turn to Ueda’s press conference which usually starts at 3:30 pm Provided that rates remain unchanged, the main question will be how far away the BOJ is from pushing for another hike. Given the level of uncertainty ahead, with a policy decision due in January four days after Donald Trump takes over the White House, Ueda will likely want to avoid imposing its third hike.
What Bloomberg Economics Says…
“The economic backdrop looks favorable for the BOJ to normalize its policy. Wage and prices data suggests its 2% inflation target is becoming increasingly safe. “We hope that Ueda will indicate at its press conference that a move is under consideration in January.”
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