"Japan BOJ Will Not Raise Interest Rates Until Next Year...Lack of Evidence for Inflation Increase"

Bloomberg Survey of 52 Economists
54% Expect BOJ to Tighten in April Next Year
Up from 33% in October Respondents
Previous CPI 2.6% Shows Smaller Increase Than October
Negative Signal

The Bank of Japan (BOJ), which has maintained a 'negative interest rate' for over seven years, is widely expected to stick to its existing monetary policy at the final monetary policy meeting of the year held on the 19th. Most experts diagnose that the BOJ has not yet secured sufficient evidence of inflation to be confident in raising interest rates.

54% of Experts Forecast April Next Year... Policy Shift in December Premature

On the 18th (local time), Bloomberg reported that in a recent survey of 52 economists, 54% of respondents pointed to April next year as the time when the BOJ would end its easing policy. In October, 33% of respondents identified April as the timing for a shift to tightening.

Kazuo Ueda, Governor of the Bank of Japan (BOJ)
Photo by EPA Yonhap News

Respondents who predicted the BOJ would begin tightening earlier, in January next year, accounted for 21% of the total. Those expecting the end of tightening in July next year recorded 9%, down 0.1 percentage points from October. On the other hand, no respondents expected the BOJ to end easing this month. In the October survey, this figure was 4%.

Experts believe that the BOJ has not yet secured sufficient evidence that Japan's inflation is maintaining a stable upward trend. Last month, the Tokyo Consumer Price Index (CPI) rose 2.6% year-on-year, narrowing from 3.3% in October. This is the lowest figure in 16 months since July last year. Since the Tokyo CPI is a leading indicator of nationwide consumer prices, this can be interpreted as a negative signal for the BOJ, which has been expecting sustained inflation in Japan.

Bloomberg explained, "BOJ officials have not yet found sufficient evidence that the wage increases are leading to inflation in a virtuous cycle," adding, "Therefore, there is a reaction that there is no need to rush to abolish the negative interest rate at this year's final monetary policy meeting."

Governor Ueda's Hawkish Remarks, Essentially a Misstatement... "Overinterpretation of Tightening"

Experts view the hawkish remarks by a BOJ official earlier this month, which stirred the financial markets, as essentially a misstatement. Earlier, Governor Ueda attended the House of Councillors' Committee on Financial Affairs on the 6th and stated, "From the end of this year through next year, the policy will shift to a more challenging situation." The market interpreted Governor Ueda's remarks as a hawkish message, causing the yen's value against the dollar to rise to the high 141 yen range in the afternoon.

However, there is also an interpretation that reading these remarks as a signal of tightening is an overinterpretation. Governor Ueda's comments were made with a long-term perspective, anticipating the end of easing policy.

Taro Kimura, a Bloomberg economist, analyzed, "Market participants took Governor Ueda's message as a signal that the BOJ would soon end its Yield Curve Control (YCC) policy, but this is likely a mistake," adding, "Experts believe this statement was probably made with a long-term view, expecting a policy shift around July next year."

BOJ Closely Watching Wage Increases and Fed Trends

There is also a forecast that the BOJ will focus on understanding the impact of next year's wage increases and the U.S. Federal Reserve's (Fed) monetary policy for the time being. The BOJ's attention is focused on whether companies will decide on large wage increases similar to this year during the spring labor-management negotiations in April next year. The BOJ views wage increases as the first step for Japan to escape deflation.

Since the Fed has signaled three rate cuts next year, it is also urgent to assess the impact on the Japanese economy. Bloomberg stated, "Governor Ueda will closely watch the impact of the Fed's pivot on the global economy," adding, "He is also expected to closely monitor the effect of U.S. rate cuts on the yen-dollar exchange rate."

This content was produced with the assistance of AI translation services.