Bank of Japan seen raising rates to 1.5% in December, Reuters poll shows
Key Facts
54 of 78 economists surveyed in Reuters' October poll expected the Bank of Japan to raise interest rates this quarter, extending its monetary tightening cycle. Respondents expected the policy rate to reach 1.5% during the quarter, with December seen as the most likely timing for the next increase. Around 80% of those who specified a month for the hike chose December, according to the poll results, concentrating expectations at year-end. Further ahead, 60% of analysts expected rates to reach 1.75% by the end of next June. The share of respondents to an additional question who expected a terminal rate of 2.00% or higher rose to 51%.
The Bank of Japan set its target for the uncollateralized overnight lending rate at around 1.25% in its September decision, according to its monetary policy statement. That followed a target of around 1.0% in its June decision, taking rates higher between the meetings. The Policy Board approved the September decision by 7 votes to 2, with divisions over rate increases persisting within the board. Board members Toichiro Asada and Ayano Sato opposed the increase, according to the bank's statement, which named the dissenters. In reaction to the decision, Naka Matsuzawa, chief macro strategist at Nomura, described the yen's decline as "a knee-jerk reaction to the two dissenting votes," according to Reuters on September 18.
On price pressures, the Bank of Japan's September statement linked producer price developments to expanding demand related to artificial intelligence. The statement also listed higher oil prices and a weaker yen among the factors putting pressure on producer prices. In the September meeting's Summary of Opinions, one participant said inflation excluding fresh food prices had recently remained within a range of 1.5–2.0%. The same participant placed inflation excluding fresh food and energy prices within the same range in their assessment of consumer price developments. The participant attributed both measures remaining within that range partly to government measures, according to the bank's published summary of participants' opinions at the meeting.
In remarks published by the Bank of Japan in October, Policy Board member Junko Koeda said the bank "should not be overly cautious about raising the policy interest rate." Koeda sees the neutral interest rate as significantly higher than 1%, according to the text of her remarks published by the bank. One opinion in the September summary attributed the short interval between the June and September increases to economic conditions proving more resilient than expected. A separate opinion said faster increases in the future would depend on an upward deviation in prices, making that prospect conditional on inflation developments. By contrast, the summary included a more cautious assessment of domestic demand, with one participant saying private consumption remained weak.
Japan's core machinery orders rose 5.2% month on month in August, according to figures in Investing.com's economic calendar. The increase followed a 3.7% decline in July, returning the monthly reading to growth in August. The increase exceeded expectations in a Reuters poll for monthly growth of 3.0% in the same month. On an annual basis, core machinery orders grew 18.6% in August, compared with 11.2% in July, according to the economic calendar. The Cabinet Office recorded the release of the August data on October 15, Japan time, putting the reading ahead of the bank's next monetary policy meeting.
The next milestones begin with the release of September national consumer price data on October 23, according to the official schedule of Japan's Statistics Bureau. The Bank of Japan then holds its next monetary policy meeting on October 29 and 30, according to its published meeting schedule. The "Bank's View" section of the Outlook for Economic Activity and Prices report is released on the meeting's final day. Also on October 30, the preliminary October consumer price reading for the Tokyo wards area is released, according to the Statistics Bureau's schedule. The December monetary policy meeting, which economists favor as the timing for the next increase, is scheduled for December 17 and 18.