Japan’s Monetary Policy Shift: Economists Predict Rate Hike
As the global economy continues to evolve, the Bank of Japan (BOJ) is poised to make a significant move towards normalizing its monetary policy. According to a recent survey of economists, an overwhelming majority predict that the BOJ will raise interest rates again at one of its two meetings this quarter, with most expecting a January move.
A Shift Away from Accommodative Settings
The BOJ’s determination to take further steps towards a more normal monetary policy is a significant departure from its radically accommodative settings of the past. This move is likely to raise rates even as most of its global peers continue to lean towards cuts.
Economists Weigh In
In a recent poll, 59 out of 61 economists surveyed predicted that the BOJ would raise borrowing costs again, with most expecting a hike to 0.50% by the end of March. Among those who specified which month, nearly two-thirds predicted a January hike, while the rest expected a March move.
Domestic Wage Momentum and Price Pressures
Strong domestic wage momentum and new price pressures are supporting the case for a January hike. According to Ayako Fujita, chief Japan economist at JPMorgan Securities, “If the inauguration of incoming U.S. President Trump does not cause major market turmoil, delaying the interest rate hike until March is seen as excessively increasing market volatility risk.”
Wage Hikes and Inflation Projections
The BOJ reported last week that wage hikes were spreading to firms of all sizes and sectors, signaling that conditions for a near-term hike were continuing to fall into place. Additionally, all but one of 22 economists who answered an extra question said it was more likely for inflation in Japan to swing higher than their predictions this year.
Currency Market Intervention
The weak Japanese currency, which has pushed up import costs and inflation, was among the factors that led to the BOJ’s decision to begin raising interest rates. In the poll, two-thirds of respondents predicted that the Japanese authorities will intervene in the currency market if the yen falls to 165 against the U.S. dollar.
BOJ’s Next Move
As the BOJ prepares for its next meeting, economists are closely watching for signs of a rate hike. With growth and inflation moving in line with the BOJ’s forecast, and import prices believed to have turned positive year-on-year in December, the central bank is facing a situation that cannot overlook the weak yen.
Leave a Reply