Bank of Japan expected to remain unchanged; all eyes on clues on timing of next hike

The central bank has moved away from more than two decades of ultra-low and even negative interest rates, raising short-term interest rates to positive territory in March and then to 0.25% at its last meeting in July this year.

Most economists believe the Bank of Japan will not change its decisions this month because the bank needs time to study how the economy and markets will adjust to tighter monetary policy.

However, more rate hikes are likely, as Bank of Japan Governor Kazuo Ueda has repeatedly said the bank will raise its target interest rate if the economy and prices develop as forecast.

But there is no consensus among economists and policymakers on how much and how quickly the bank will raise its borrowing costs.

What to watch

—All eyes are on whether Governor Ueda will reiterate his hawkish message that the bank will pursue further rate hikes at his news conference on Friday at 06:30 GMT (15:30 Tokyo time).

—Ueda’s assessment of recent market moves will be closely watched as the bank has pledged not to raise rates when markets are volatile. As the U.S. Federal Reserve begins an easing cycle and the BOJ tightens policy, speculation about a narrowing spread between U.S. and Japanese interest rates has boosted the yen. That has raised concerns that exporters’ dollar-denominated earnings will fall after repatriation and is putting pressure on the Tokyo stock market.

—Some policymakers worry the bank won’t be able to raise rates much further because a stronger yen would lower import prices and slow overall inflation, according to people familiar with the BOJ’s thinking. That could undermine years of efforts to achieve stable, benign inflation. They also expressed concern that a stronger yen could weigh on corporate profits.

—Japanese companies typically forecast their profits based on the assumption that the dollar will trade at around 145 yen, according to a BOJ corporate survey. If the yen remains stronger than that level, exporters may have to lower their profit forecasts. The dollar last traded at around 141.40 yen.

—More than half of 36 economists surveyed expect the BOJ to raise interest rates in December, according to a Japan Center for Economic Research poll released Tuesday.

Write to Megumi Fujikawa at [email protected]