Expectations of BOJ interest rate hike at October policy meeting grow

The Bank of Japan (BOJ) is increasingly expected to raise its key interest rate at the October policy board meeting, as speculation intensifies on the back of fresh remarks from a former board member and stronger-than-anticipated economic ￰0￱ Sakurai, a former BOJ policy board member, said this week that an October hike cannot be ruled ￰1￱ flagged the likely upward revision to Japan’s inflation and growth ￰2￱ comments were the latest to suggest that the central bank would move sooner rather than ￰3￱ markets now indicate a 50% chance of an interest rate cut on October ￰4￱ is a significantly stronger signal than earlier this month, when bets on an imminent hike were much lower.

A Reuters poll of economists echoed this outlook, with over 93% forecasting a hike of at least 25 basis points by year-end, which would lift the BOJ’s policy rate from 0.5% to 0.75%. In August, Hironori Kamezawa, CEO of Mitsubishi UFJ Financial Group, also noted that October was a plausible timeline, citing sticky inflation and easing global trade ￰5￱ years, the BOJ stood apart as the only major central bank clinging to ultra-loose monetary ￰6￱ with inflation surpassing its 2% target for more than three years, pressure is mounting to normalize policy ￰7￱ hawkish momentum builds The BOJ’s most recent meeting on September 19 reinforced this ￰8￱ board voted to maintain rates at 0.5%.

However, two board members, Naoki Tamura and Hajime Takata, dissented for the first time since Governor Kazuo Ueda took office. Instead, they voted for an increase to 0.75%. Analysts said the votes against were symbolic, indicating that hawkish sentiment is gaining sway inside the nine-member ￰9￱ alliance board member, Makoto Sakurai, said the dissent might be a coordinated signal of an approaching policy ￰10￱ bank said it would also take steps to shrink its holdings of exchange-traded funds (ETFs) and real-estate investment trusts (REITs). That was the first step in unwinding more than half a decade of asset purchases that had characterized an era of aggressive monetary ￰11￱ of meetings released this week add to the ￰12￱ argued that the federal funds rate was below what would be expected to be neutral when inflation is high and the output gap is ￰13￱ viewpoint indicates that even more members are preparing for action.

Sakurai, who left the BOJ in 2021, said policymakers could postpone a move until December if they need clearer readings of the effect of ￰14￱ he thinks that the overall trajectory points ￰15￱ sees the policy rate rising as many as 100 basis points over the next two and a half years, reaching 1.5% before Ueda’s term expires in ￰16￱ election could shape BOJ’s timing Government leadership could also factor into the timing. Japan’s ruling Liberal Democratic Party (LDP) will hold its leadership election on October ￰17￱ result could determine the mood for BOJ ￰18￱ of the leading candidates , Sanae Takaichi, has been considered a supporter of easy-money ￰19￱ September, during a leadership contest she ultimately won, she said that a rate rise would be “absurd.” But her tone has tipped this ￰20￱ has said that the monetary tools should be left to the BOJ, while the government sets fiscal and economic ￰21￱ Takaichi, or any other dovish contender, take the top job, it is possible that the BOJ will move cautiously in the near ￰22￱ watchers say the bank could postpone a hike to avoid looking at cross purposes with the incoming ￰23￱ the BOJ is nominally ￰24￱ decision will be based on inflation, wage growth, and the wider outlook for trade and consumption.

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