Reuters poll points to Bank of Japan rate hike to 1.50% in December
Key Facts
A Reuters poll showed 54 of 78 economists expected the Bank of Japan to raise interest rates to 1.50% in the current quarter, with December seen as the most likely timing. About 80% of respondents who specified a month for the hike chose December for the next move. Expectations for tightening extend beyond the current quarter, with 60% of economists forecasting rates would reach 1.75% by the end of next June. The forecasts follow the bank's September decision to set its target interest rate at around 1.25%. In its June statement, the bank had affirmed its intention to continue raising rates in response to developments in the economy, prices and financial conditions.
The Bank of Japan had set interest rates at around 1.0% in its June decision, before adjusting them in September. The September adjustment was approved by 7 votes to 2, according to the bank's policy statement. Policy board members Toichiro Asada and Ayano Sato opposed raising rates at that meeting. Disagreement over the pace of tightening extended to the meeting's summary of opinions, which included a view supporting shorter intervals between rate increases. The proponent of that view linked faster hikes to economic conditions proving more resilient than expected, according to the summary published by the bank.
On prices, the Bank of Japan attributed persistent producer price pressures partly to higher oil prices and a weaker yen. The September summary of opinions also addressed the pass-through of rising costs to prices paid by purchasers of final goods. One opinion in the summary held that accelerating distribution costs were helping companies pass on their higher costs to those prices. Policy board member Junko Koeda said sustainable inflation had become more firmly established in Japan than before. In remarks published by the bank, she added that "the bank should not be overly cautious about raising interest rates," backing further tightening.
By contrast, the September summary of opinions included a more cautious assessment of domestic demand, judging that private consumption remained weak. Core machinery orders data for August showed a monthly increase of 5.2%, according to the Investing.com economic calendar. The rise exceeded forecasts for an increase of 2.2% in the same month. It also followed a decline of 3.7% in July, according to figures in the calendar. The reading covers core machinery orders and was released on October 14, while the period of activity it covers is August.
In currency markets, the yen briefly fell following the September dissent against the rate hike decision, according to Reuters. The agency linked the move to traders interpreting the dissent as a sign of political resistance to the rate-hiking path. The currency weakened despite the policy board approving a rate increase at the same meeting by a majority vote. Asada and Sato's opposition to the decision drew traders' attention as they assessed the future tightening path, according to the agency's account of the market reaction. That response places the policy board's divisions among the factors underpinning economists' expectations for the next increase, alongside board members' views on the economy and prices.
The upcoming schedule begins with the release of Japan's September consumer price data on October 23, Japan time, according to the Statistics Bureau's schedule. The Bank of Japan then holds its next monetary policy meeting on October 29 and 30, according to its official schedule. The conclusion of that meeting coincides with the release of the bank's projections in its Outlook for Economic Activity and Prices report. The forthcoming report includes the bank's assessment of economic activity and prices as part of its October meeting cycle. The December meeting, which most respondents specifying a month in the Reuters poll picked for a hike, is scheduled for December 17 and 18.