The timing of the next interest rate hike by the Bank of Japan (BOJ) is unclear, as analysts are split over whether it will happen next month or be delayed until December.
While some expected an immediate move after Governor Kazuo Ueda’s statement last month about the central bank’s focus on inflation and market conditions, no change is expected at this week’s meeting.
Instead, economists and fund managers are focused on future meetings, with opinions diverging on the possible timing.
The BOJ raised rates in July, surprising many in the market. This triggered a rapid surge in the yen and a drawdown in global equities.
With inflation still a huge concern, the BOJ’s decisions on when to hike again will have huge consequences for Japan’s economy and the global markets.
According to a CNBC survey of 32 analysts, there’s no expectation for a rate change in September. The survey found 18.75% of analysts predicted an October hike, while 25% considered it possible.
Another 25% said a December hike is likely, and 31.25% called it a “live meeting,” meaning the BOJ will wait to see how the economic data plays out.
Jessica Hinds from Fitch Ratings mentioned that the BOJ is likely to proceed cautiously, allowing the effects of the July hike to fully materialize before making another decision.
Analysts like Gregor Hirt, the global chief investment officer at Allianz Global Investors, believe that strong inflation and wage data could push the BOJ to act in October.
He sees the global repricing of yield curves as a key factor that could support Japan’s bonds, giving the economy time to adjust.
Others, like Masamichi Adachi from UBS, agree that October is a possibility but note that market conditions and politics in both Japan and the U.S. must remain stable for this to happen.
Adachi sees the BOJ Tankan survey as another critical factor, and if it stays solid, a move in October could be on the table.
For Richard Kaye, a portfolio manager focusing on Japan equities at Comgest, if the yen continues to appreciate, it will reduce inflationary pressure, lessening the need for another rate hike this year.
Kaye expects the yen to normalize to its long-term average of 120-130 against the U.S. dollar, which would solve Japan’s issue with rising imported commodity costs.
“The main factor driving the yen is the yield gap with the U.S.,” said Kaye.
With America’s Federal Reserve expected to cut interest rates soon, Kaye believes the BOJ will hold off.
A Reuters poll from last month found that economists see a 57% chance of another rate hike before the end of the year.
The Fed is widely expected to cut rates at its meeting tomorrow, with markets betting on a 25 basis point reduction. This cut will likely weaken the dollar, further strengthening the yen.
In fact, the dollar already fell to 140.71 against the yen last week, after traders began betting on a larger rate cut from the Fed.
A stronger yen could relieve some inflationary pressures in Japan, particularly through reduced costs for imported goods.
For crypto enthusiasts and investors, the BOJ’s rate decisions are very important. A stronger yen, or further hikes, could affect global liquidity.
As the year comes to an end, the Japanese market remains a key player in the global financial ecosystem.
