BOJ to raise rates in Dec as yen weakens and Trump returns, most analysts say: Reuters poll By Reuters
Written by Satoshi Sugiyama
TOKYO (Reuters) – The Bank of Japan will raise interest rates again at its December meeting as the economy tightens and worries about a decline in the number of policymakers to act, according to more than half of economists polled by Reuters.
The BOJ is also likely to continue raising interest rates after Donald Trump’s November 5 election victory, most economists say, as markets brace for a slew of inflationary policies under the new administration.
In a November 13-21 survey released Friday, 56% of economists, 29 out of 52, said the BOJ would raise borrowing costs again by the end of the year, compared with 49% polling last month. The median forecast for the year-end rate was 25 basis points higher at 0.50%.
Analysts said that the economy and rates are moving in line with the BOJ’s vision, the decline in global economic risks and the yen’s depreciation will encourage the central bank of Japan to change rates.
“If the BOJ does not act in December, there is a risk that the yen will weaken further at the end of January when the next meeting is scheduled, and that the bank will lag behind in responding,” said Kazutaka Maeda, an economist at Meiji Yasuda Research Institute.
A weak yen – which had pushed up import costs and inflation – was among the factors that led to the BOJ’s decision to raise interest rates in July.
BOJ Governor Kazuo Ueda said this week that the economy is moving toward wage-driven deflation and warned against keeping borrowing costs too low. He said the BOJ will “seriously consider” the impact the yen’s movement could have on the economic outlook and prices.
Nearly 90% of economists, or 44 out of 49, predict the BOJ will raise rates to 0.50% by the end of March. The two who had predicted a rise to 0.50% by the end of the year expected the rate to be 0.75% by the end of the first quarter.
Among the small sample of 20 who gave monthly forecasts and expected a rate hike next year or no hike at all, 90%, or 18, chose January. That’s up from nearly three-quarters in the October election and 60%.
Additionally, 96% of economists, or 24 out of 25, expect that Trump’s return to the White House will encourage the BOJ to raise interest rates, the poll found.
Respondents said that the president-elect’s economic policy, including tax cuts and tax cuts, will stimulate inflation in the US which will in turn increase inflationary pressure in Japan.
“In fact, the BOJ would like to continue raising interest rates cautiously, taking into account the impact on the economy and other factors,” said Mitsuo Fujiyama, senior economist at the Japan Research Institute.
“But with inflation in other countries causing prices to rise again, it looks like he has no choice but to raise interest rates.”
The median of the 26 economists who gave their opinion on what the final BOJ rate should be was 1.00%, with a range of 0.50% and 2.50%.
The BOJ ended negative interest rates in March and raised its short-term policy rate to 0.25% in July in view of Japan’s efforts to firmly reach its 2% inflation target.
Japan’s economy expanded 0.9% year-on-year in the last quarter, slowing from three months ago on cheap spending although an unexpected recovery in consumption was a bright spot.
(More news from Reuters global economic survey)
