Bank of Japan expected to stand pat; All eyes for clues on timing of next hike
Summary
Most economists think the Bank of Japan will stand pat at its two-day meeting ending Friday because the bank needs time to examine how the economy and markets adapt to tighter monetary policy.
The Bank of Japan is widely expected to keep interest rates on hold at its two-day meeting ending Friday as it parses the impact of its recent rate hikes.
The central bank shifted away from more than two decades of ultralow or even negative interest rates when it raised short-term interest rates into positive territory in March and again to 0.25% at its last meeting in July this year.
Most economists think the BOJ will stand pat this month because the bank needs time to examine how the economy and markets adapt to tighter monetary policy.
Still, more rate increases are likely as BOJ Gov. Kazuo Ueda has repeatedly said the bank will lift its rate target as long as the economy and prices develop as projected.
But there is no consensus among economists and policymakers over how far and how fast the bank will raise borrowing costs.
What to Watch
—All eyes are on whether Gov. Ueda will reiterate his hawkish message, that the bank will pursue more rate increases, at his press conference at 0630 GMT (1530 Tokyo time) Friday.
—Ueda’s assessment of recent market movements will be closely watched because the bank has pledged not to raise rates when the markets are volatile. With the U.S. Federal Reserve embarking on an easing cycle while the BOJ tightens, speculation of a narrowing gap between U.S. and Japanese interest rates has caused the yen to strengthen. That in turn raises concerns that exporters’ dollar-denominated earnings will fall when repatriated and pressures the Tokyo stock market lower.
—According to people familiar with the BOJ’s thinking, some policymakers are worried the bank may not be able to raise rates much further because a stronger yen would make imports cheaper and slow overall inflation. That has the potential of undermining years of efforts attaining steady mild inflation. They also expressed concern that a firmer yen could weigh on corporate earnings.
—Japanese companies typically project their earnings based on the assumption that the dollar would trade around 145 yen, according to the BOJ’s corporate survey. If the yen remains stronger than that level, exporters may need to lower their profit projections. The dollar was recently traded around 141.40 yen.
—According to a Japan Center for Economic Research survey released Tuesday, more than half of the 36 economists polled expect the BOJ to next raise rates in December.
Write to Megumi Fujikawa at megumi.fujikawa@wsj.com
