Half of Economists Still See BOJ Waiting Until December to Hike

96xvqw5ow69qac4j5z8r(rgz_media_dl_1.png Bloomberg survey of 52 BOJ watch

Article content

(Bloomberg) — Half of surveyed economists still expect the Bank of Japan to wait until December to bump its benchmark interest rate higher, with Prime Minister Sanae Takaichi’s government seen as a key obstacle to further action, according to a Bloomberg survey.

Article content

Some 50% of 52 economists selected December as the most likely timing for the next move after the BOJ raised the rate last month, according to the poll. Another 40% said it would come in October.

Article content

Article content

Article content

Takaichi is known to support monetary easing, and her government’s influence will be a deterrence for the board to proceed along the path toward policy normalization, according to 59% of the respondents. An overwhelming majority — 82% — forecast the pace of rate hikes to be roughly once every six months, an increase from 71% in a June survey.

Article content

Article content

The survey shows economists remain less confident about the BOJ’s ability to hike than market participants, who were pricing in an 83% probability of a move by October as of Thursday morning. According to people familiar in a report published after the survey closed, the board is open to raising interest rates at a faster pace than the consensus among the economists, as the weak yen adds to upside inflation risks.

Article content

Click here to read the full results of the survey.

Article content

The government has tried to play down perceptions it is seeking to influence the central bank. In an annual economic policy guideline earlier this week the government referred to its commitment to respecting the BOJ’s autonomy. That added reference came after an earlier draft helped send yields on benchmark 10-year government bonds to the highest in three decades by fueling concerns over a delay in normalization.

Article content

Article content

Even so, many economists remain unconvinced. About two-thirds of respondents said they didn’t believe that the changes to the guideline mean the government will refrain from attempting to influencing the central bank’s independence.

Article content

“The bar is high for an early additional rate hike because of the gap between the BOJ and the government over the pace of interest-rate increases,” said Tsuyoshi Ueno, chief economist at NLI Research Institute.

Article content

The BOJ raised borrowing costs to 1% on June 16 without any clear signal from the government opposing the action. Some 65% of the BOJ watchers said that the weakening of the yen compelled Takaichi to accept the hike. 

Article content

The yen slid past 163 per dollar earlier this week for the first time since 1986 after flaring tensions in the US-Iran conflict spurred oil prices higher. A weak yen adds to inflationary pressures as Japan imports virtually all of its energy and well over half its food.

Article content

With the currency continuing to slump amid persistent uncertainty over the direction of oil prices, many economists aren’t ruling out an early rate hike. When asked about the earliest possible timing for a policy shift, some 37% chose September, up from 23% in a survey following the June meeting.

Article content

“Upside risks to inflation remain elevated, with the yen’s depreciation adding to price pressures,” said Kento Minami, an economist at Daiwa Securities. “The BOJ is shifting the focus of its rate decisions toward managing upside inflation risks, making an additional hike increasingly likely to come sooner than previously expected.”

Article content

A key focus of the meeting will be updated quarterly economic projections. The median economist prediction suggests a slight downgrade of inflation forecast for this year to 2.6% from 2.8% while the economic growth projection will be upgraded to 0.7%.

Article content