The timing of the Bank of Japan’s next interest rate hike remains to be determined, with analysts divided over whether it will occur in October or be delayed until December. Despite earlier expectations of an imminent move following Governor Kazuo Ueda’s recent remarks on inflation and market conditions, change is still being determined at this week’s policy meeting.
Analysts split over rate hike timing
Economists now focus on future central bank meetings, and opinions vary widely on when the next rate increase might happen. The BOJ’s unexpected rate hike in July surprised many, leading to a rapid appreciation of the yen and a decline in global equities. With inflation still a significant concern, the timing of the next rate adjustment will have substantial implications for Japan’s economy and international markets.
A CNBC survey of 32 analysts revealed that none expect a rate change in September. About 19% predicted a hike in October, while 25% considered it possible. Another 25% believe a December hike is likely, and 31% view upcoming meetings as “live,” meaning the BOJ will wait to assess how economic data unfolds before making a decision.
Cautious approach amid economic indicators
Jessica Hinds of Fitch Ratings suggests that the BOJ will likely proceed cautiously, allowing the effects of the July rate hike to fully materialize before taking further action. Some analysts, like Gregor Hirt, global chief investment officer at Allianz Global Investors, believe that solid inflation and wage data could prompt the central bank to act in October. He notes that the global repricing of yield curves could support Japan’s bonds, giving the economy time to adjust.
Others, such as Masamichi Adachi from UBS, agree that an October move is possible but emphasize that stable market conditions and political landscapes in Japan and the United States are necessary. Adachi points to the BOJ’s Tankan survey as a critical factor; a rate hike in October could be considered if it remains solid.
Yen’s strength may influence policy decisions
Richard Kaye, a portfolio manager specializing in Japanese equities at Comgest, believes that if the yen continues to strengthen, it could reduce inflationary pressures and diminish the need for another rate hike this year. He anticipates the yen will normalize to its long-term average of 120–130 against the U.S. dollar, which would help address Japan’s rising costs of imported commodities.
Kaye notes that the main factor influencing the yen is the yield gap with the United States. With the U.S. Federal Reserve expected to cut interest rates soon, he suggests the BOJ may hold off on raising rates. A Reuters poll from last month indicated that economists see a 57% chance of another rate hike before the end of the year.
The Federal Reserve is widely anticipated to cut rates at its meeting tomorrow, with markets betting on a 25-basis-point reduction. Such a cut could weaken the dollar and strengthen the yen. The dollar fell to 140.71 against the yen last week as traders anticipated a larger rate cut from the Fed. A stronger yen could ease inflationary pressures in Japan by lowering the cost of imported goods.