Written by Satoshi Sugiyama
TOKYO (Reuters) – The Bank of Japan will raise interest rates again at one of two meetings this quarter to 0.50%, with most leaning toward the January move, a vast majority of economists polled by Reuters said.
The results show the Bank of Japan's determination to take further steps toward a more normalized monetary policy after years of radically accommodative settings, raising interest rates even as most of its global peers remain leaning toward cuts.
In a Jan. 8-15 poll released Thursday, all but two of the economists surveyed, 59 of 61, said the Bank of Japan would raise borrowing costs again, to 0.50%, by the end of March.
Of the 32 countries that expected to raise interest rates this quarter and specified which month, 20 said so at the January 23-24 meeting, while the rest said so in March.
Since policymakers held rates in place in December, analysts have been speculating about when the Bank of Japan will raise rates again, given uncertainty over domestic wages and economic plans from US President-elect Donald Trump, who will return to the White House on January 20.
Bank of Japan Governor Kazuo Ueda and Deputy Governor Ryozo Himeno said earlier this week that the central bank will discuss whether to raise interest rates at its next meeting.
Strong domestic wage momentum and new price pressures support the case for a wage hike in January, said Ayako Fujita, chief Japan economist at JP Morgan Securities.
“If the inauguration of new US President Trump does not cause major market disruptions, delaying interest rate hikes until March will be seen as excessively increasing the risk of market volatility,” Fujita said.
The Bank of Japan said last week that wage increases extended to companies of all sizes and sectors, suggesting that the conditions for a near-term wage increase continue to emerge.
After ending negative interest rates in March 2024, the central bank last raised its short-term policy target to 0.25% in July. The bank indicated its willingness to raise interest rates again if wages and prices move as expected and increased its conviction that Japan will permanently reach an inflation rate of 2%.
All but one of the 22 economists who answered an additional question said Japan's inflation was likely to swing higher than their expectations this year.
“There is a greater risk of higher inflation than lower risk, due to the risk of the yen weakening for longer than expected due to factors such as delayed US interest rate cuts,” said Harumi Taguchi, chief economist at Standard & Poor's Global. Market intelligence.
In addition, the average of 23 economists who offered their view on the rate of wage increases in labor administration negotiations this spring was 4.75%, up slightly from 4.70% in a poll conducted last month. It was down from 5.1% last year but still higher than 3.58% the year before.
Atsushi Takeda, chief economist at Itochu Research, said that given that growth and inflation are moving in line with the Bank of Japan's expectations and import prices are believed to have turned positive year-on-year in December, the Bank of Japan faces a situation where it cannot overlook a weak yen. institute.
The weak Japanese currency – which led to higher import costs and inflation – was among the factors that led to the Bank of Japan's decision to start raising interest rates.
In the survey, two-thirds of respondents, or 14 out of 21, said Japanese authorities would intervene in the currency market if the yen fell to 165 yen against the US dollar. Nearly 20%, or four, said 160 yen.
(Other stories from Reuters' long-term global economic outlook package)
