A Bloomberg survey showed that just over half of Bank of Japan watchers believe the next rate hike will be in December, while no one expects the central bank to take policy action at its meeting next week. The survey showed that about 87% of 53 economists expect the Bank of Japan to raise interest rates by the end of January next year, and 53% believe that December is the most likely month for an adjustment.
The survey results showed that the vast majority of analysts believed that market turmoil in the days after the Bank of Japan's July 31 rate hike had not spooked authorities or derailed them from normalizing monetary policy. In the past four weeks, five of the nine board members said they would raise rates again if the central bank's inflation forecasts were realized.
The Bank of Japan is set to conclude its two-day policy meeting on Sept. 20. BOJ Governor Kazuo Ueda and other officials have stressed the need to monitor the impact of financial market volatility on the inflation outlook, suggesting action is unlikely at the meeting.
"The probability of a rate hike at this meeting is extremely low," said Masamichi Adachi, chief Japan economist at UBS Securities. "It is too early to judge the impact of the July rate hike and the market plunge." That view was shared by many others, with analysts seeing almost zero chance of a rate hike next Friday, though about 53% of them, based on their risk scenarios, see the earliest a hike would be in October.
The median forecast from analysts showed they see the Bank of Japan's rate rising to 0.5% by the end of the year and 0.75% by the end of 2025, suggesting they expect a very slow upward trajectory for rates. The Bank of Japan meeting comes hours after the Federal Reserve was expected to cut its benchmark interest rate in a long-awaited shift to an easing cycle. About 56% of economists said a Fed rate cut could have an impact on the Bank of Japan's rate path. Economists will be watching closely for the impact of the move on the U.S. economy and the yen.
"Global market participants are discussing the possibility of a U.S. economic slowdown or recession, and they believe the Fed rate will fall below 3%," said Chotaro Morita, chief strategist at All Nippon Asset Management. "If the economic environment forces the Fed rate below 3%, it will become impossible for the Bank of Japan to raise rates."
The yen hit 140.71 per dollar, a year-high, after Bank of Japan board member Junko Nakagawa reiterated on Wednesday that the central bank would raise rates if conditions allowed. Bank of Japan watchers noted that the yen still has a long way to go to prevent authorities from raising borrowing costs. According to the median view of analysts, the yen must appreciate to around 125 to make it difficult for the Bank of Japan to continue raising interest rates.
Economists are trying to judge whether the ruling Liberal Democratic Party leadership election will affect the Bank of Japan's policy path. Given the party's dominant position in parliament, the winner of the election will almost certainly become the country's next prime minister. Of the 36 economists who responded to the question, 86% believed that Sanae Takaichi, who advocates loose monetary policy, would make the Bank of Japan's normalization task most difficult. Several other candidates also expressed support for tightening loose monetary policy to support the yen and curb inflation. The LDP leadership election will be held on September 27.
"The likelihood of a national election this fall is rising, and the U.S. presidential election could have a clear impact on financial markets," said Katsuhiko Aiba, Japan economist at Citigroup Global Markets. "This means the Bank of Japan's policy meetings in September and October will be a time to review financial market and economic conditions," he said.
The article is forwarded from: Jinshi Data