The Bank of Japan is expected to raise its benchmark interest rate this week, driven by recent positive economic indicators and a shift in the BOJ's stance. Economists predict the rate hike, signaling increased confidence in Japan's economic recovery and the potential for a virtuous cycle of rising prices and wages.
The Bank of Japan (BOJ) is widely expected to raise its key interest rate by 25 basis points this week, marking its highest level since 2008. A consensus among economists, with 18 out of 19 predicting a rate hike, points to a recent shift in the BOJ's rhetoric as the primary driving force behind this anticipation. Governor Kazuo Ueda and Deputy Governor Ryozo Himino's public comments last week signaled a willingness to increase rates if economic and price improvements continue.
Ueda stated on January 16th that the central bank would act on rates if these improvements persisted, while Himino asserted that maintaining negative real interest rates after Japan overcomes deflationary pressures would be 'not normal.' These statements indicate a diminishing of the headwinds that prevented a rate hike last month, according to economists polled by CNBC.However, a key risk to this forecast remains the uncertainty surrounding Donald Trump's presidency and its potential impact on financial markets and Japan's economy. Economists, such as Uichiro Nozaki of Nomura Securities and Takeshi Yamaguchi of Morgan Stanley MUFG Securities, cite Himino's speech as a 'major catalyst' for their rate-hike call, highlighting the more positive tone surrounding wage increases in fiscal 2025 and the uncertainty surrounding the incoming U.S. administration. The persistent weakness of the yen, which had weakened to 6-month lows at 158.37 prior to Himino's speech, is also cited as a factor supporting a rate hike. The BOJ's long-standing objective is to establish a 'virtuous cycle' of rising prices and wages, where higher wages would fuel increased prices and consumption, ultimately leading to sustainable economic growth. While core inflation in Japan has consistently met or exceeded the BOJ's 2% target for 32 consecutive months, household expenditure data has not shown significant improvement. The BOJ will need to carefully monitor these indicators to ensure the virtuous cycle takes hold and contributes to a sustained recovery in the Japanese economy
Bank Of Japan Interest Rate Hike Economic Recovery Inflation Wages Virtuous Cycle
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