Bank of Japan Governor Kazuo Ueda delivers a speech at the start of the issuance of new yen notes at the Bank of Japan headquarters in Tokyo on July 3, 2024.
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The Bank of Japan is expected to raise its benchmark interest rate by 25 basis points this week, according to a poll of economists polled by CNBC.
A rate hike would put the Bank of Japan's key interest rate at 0.5%, its highest level since 2008.
An overwhelming majority of 18 out of 19 economists agreed on the prospects for a rate hike, with most pointing to the recent change in tone of the Bank of Japan's leadership as driving their expectations. The survey was conducted from January 15 to 20.
Public comments By Governor Kazuo Ueda and A letter Deputy Governor Ryozo Himeno signaled to business leaders last week that the Bank of Japan was willing to raise interest rates.
Ueda said on January 16 that the central bank would raise interest rates if “the improvement in the economy and prices continues,” according to a report by Reuters.
Meanwhile, Himeno said the bank will discuss raising interest rates at the next meeting, adding that it “would not be normal” for real interest rates to remain negative once Japan overcomes deflationary factors.
This tone suggests that the headwinds that prevented a rate hike last month have diminished, according to several economists polled by CNBC.
However, they also noted that the main risk to this forecast is the uncertainty caused by the presidency of Donald Trump and its potential impact on financial markets and the Japanese economy.
Oichiro Nozaki, an economist at Nomura Securities, described Himeno's speech as a “major catalyst” for their call for higher interest rates.
“From (Himino and Ueda’s) statements, we saw that the Bank of Japan is more confident. Regarding wage increases, Himeno said the main scenario is for wage increases to their highest levels in 2024 to be achieved in 2025.”
Takesh Yamaguchi, chief Japan economist at Morgan Stanley MUFG Securities, backed his call for higher interest rates, noting that recent comments from the Bank of Japan's leadership indicate a “more positive tone on two key points, i.e. expectations for wage increases in fiscal 2025 and uncertainty.” Concerning the next American administration.”
Another common factor cited by economists in favor of a rate hike is ongoing weakness in the yen, which, before Himeno's speech on January 14, had fallen to a 6-month low of 158.37.
“The yen has weakened significantly since the Bank of Japan decided to skip a rate hike in December,” said Stefan Angerek, associate director at Moody's Analytics.
“This, coupled with a series of hotter-than-expected inflation rates for consumer, producer and import prices, raises the odds of monetary policy action in January.”
Rising expectations for a rate hike this week have supported the Japanese currency, which rose 1.24% in the seven days through Tuesday. the yen The index rose between July and September, before falling to more than 158 points towards the end of last year.
LSEG data indicates that the probability of a rate hike at the next meeting is approximately 88%.
Economic indicators
The Bank of Japan has long said that its goal is to ensure a “virtuous circle” of rising prices and wages, whereby higher wages would ostensibly lead to higher prices and consumption.
The virtuous cycle is expected to lead to sustained growth in the Japanese economy, which had been in recession since the 1990s when the asset bubble burst.
Some economic indicators were pointing in the right direction. Japan's core inflation – which excludes fresh food prices – has met or exceeded the Bank of Japan's 2% target for 32 straight months, and in 2024 He saw the largest increase in Shinto pay Negotiations in 33 years.
In his speech, Himeno said the bank should pay close attention to the wage increase in fiscal year 2025, which runs from April 2025 to March 2026.
“Every company faces unique challenges, and raising wages will by no means be simple,” he said. “But I hope to see strong wage increases in fiscal year 2025 as we did in fiscal year 2024.”
However, household expenditure data did not show significant improvement. Household spending has declined each month year-on-year since March 2023, except for two marginal increases in April and July 2024.
A weak spending figure may mean that demand is weak, which will affect the Bank of Japan's “virtuous cycle”.
