TOKYO: New Prime Minister Shigeru Ishiba won’t impede the Bank of Japan’s (BoJ) path towards raising interest rates, with January the most likely timing for its next hike, according to a former executive director in charge of monetary policy.
“My view at the moment is that January has the highest probability,” Eiji Maeda, the former executive, said in an interview Tuesday.
“That would be about a half year since the July rate hike and that’s also when the bank releases its latest economic projections.”
Ahead of that, the BoJ will be watching three critical developments: the US presidential election, the trend in service prices this autumn and momentum in the run-up to next year’s annual wage talks.
Depending on how those factors play out, the timing of the hike could move forwards or backwards, said Maeda, who led the central bank’s crisis response efforts before stepping down in May 2020.
“These factors will be clear gradually so depending on them, the hike could come either in December or March,” Maeda said.
The chances of a move when the board next sets policy on Oct 31 are “almost none. If they move, they would create the impression that they move every three months”.
Maeda was speaking after Ishiba last week emerged from a meeting with governor Kazuo Ueda and told reporters the economy isn’t ready for a hike right now.
The surprisingly explicit remark spawned market debate over how long the government might want the central bank to wait.
Ishiba later clarified that he was merely trying to show he’s on the same page as Ueda.
In any event, Maeda, who was also the BoJ’s chief economist, sees little impact from Ishiba’s remarks, as the premier has also said he’s inherited his predecessor Fumio Kishida’s stance on the economy.
Under Kishida’s watch, the BoJ ended its massive easing programme with its first hike in 17 years in March and then followed with another in July.
“I don’t think the new government will bind the hands of the BoJ,” Maeda said. “The BoJ won’t be changing its approach because we have a new prime minister.”
Maeda, who is currently president of Chibagin Research Institute, said he expects current borrowing costs of 0.25% to be raised about every six months en route to reaching 1% by around January 2026.
Recent economic data have shown that Japan’s recovery is intact.
Base salaries grew at a record pace of 2.9% in August, according to a government report on Tuesday, while a key inflation gauge accelerated in August for a fourth consecutive month.
Ueda recently reiterated that the bank has “enough time” to sift through uncertainties over the economy and financial markets before mulling its next policy adjustment.
Most BoJ watchers concur with Maeda that the likelihood of a hike this month is very low.
Ueda’s remark that there is time to consider means little beyond the point that a policy change isn’t imminent, Maeda said.
Still, after the financial market turmoil that erupted days after the BoJ’s July 31 rate move, authorities will probably take extra care to telegraph the next move when the time nears, Maeda said.
“That was a small explosion in the market. I seriously think that magma would have kept accumulating for a mega explosion without that,” Maeda said of the early August market turmoil that caused the Nikkei 225 to drop by the most in its history.
“It was inevitable to some extent. Normalising that big monetary easing programe is a huge task.” — Bloomberg
