The Bank of Japan is expected to raise rates in December and keep tightening until the policy rate reaches 2%, according to its former top economist Seisaku Kameda. He sees the global market rout as a risk to the timing only if volatility persists.
The Bank of Japan is expected to raise interest rates in December and keep lifting borrowing costs next year until they reach 2%, the central bank's former top economist Seisaku Kameda told Reuters on Friday. Kameda says the move aims to combat mounting inflationary pressure.
Market rout unlikely to derail the December hike
The global market rout that sent Japanese stocks tumbling on Friday is unlikely to derail a rate hike next month, Kameda said, unless volatility persists into the run-up to the December 17-18 meeting. According to Kameda, the BOJ might pause if there is a "full-fledged collapse in the AI boom" that hits Japan's economy through a severe downturn in US growth.
Otherwise, Kameda said the BOJ is likely to raise its policy rate to 1.5% in December. After that, he expects hikes at a pace of roughly once a quarter until the terminal rate of 2%.
Inflation pressure keeps building
Kameda said consumer inflation is likely to accelerate in coming months as firms pass on costs including for food products. Stubbornly high energy costs and rising import prices from a weak yen add to the pressure, according to the report.
Against that backdrop, the BOJ raised rates in September after a hike in June, a shorter interval than the roughly twice-a-year hikes in 2024 and 2025. Kameda believes Japan's economy can weather such increases, with corporate profits remaining strong and consumption likely to get support from a scheduled sales tax cut on food items.
BOJ signals a more hawkish phase
The BOJ kept rates steady last month but stressed its resolve to combat inflationary risk, reinforcing dominant market bets of a December rate hike. At the October meeting, it also said underlying inflation has hit its 2% target.
Kameda said that pronouncement came too late. A majority of the indicators the BOJ cited had hit 2% some time ago, he added. He said the delay likely reflected the BOJ's preference for taking rate hikes slowly, given Japan's prolonged experience with low price growth or deflation.
Still, Kameda said the BOJ's policy shifted gear around June and July toward a rate hike once every quarter. In his view, the next hike will most likely come in December or, if markets remain unstable, January at the latest.
Source: Reuters via Investing.com
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