Speculation Growing for Dec. Rate Hike by BOJ

Tokyo, Nov. 29 (Jiji Press)–Market participants are increasingly speculating that the Bank of Japan could raise its policy interest rate in December, in light of recent remarks by senior BOJ officials indicating the central bank’s willingness to revise its monetary policy soon. As Prime Minister Sanae Takaichi is looking to turbocharge the economy with aggressive fiscal spending and monetary easing, it is unclear whether she would tolerate another rate hike this year. However, there are concerns that the yen’s depreciation could accelerate if the BOJ bows to government pressure and skips a rate hike at its next policy-setting meeting on Dec. 18-19. “The environment (for an interest rate hike) has already been prepared, considering the economic and price situations,” Kazuyuki Masu, a member of the BOJ’s Policy Board, has said. “Proceeding with policy normalization is necessary to avoid creating unintended distortions in the future,” said Junko Koeda, another BOJ policymaker. Japan’s consumer price index continues to rise at a pace well above the BOJ’s 2 pct inflation target. If interest rates remain low for an extended period, the yen could continue to weaken, further pushing up import prices of food and other goods to the detriment of households. At a House of Representatives Financial Affairs Committee meeting on Nov. 21, BOJ Governor Kazuo Ueda said that the weakening yen could push up consumer prices. Although a weaker yen would likely negatively affect the Takaichi administration’s measures to combat inflation, economic experts advising the prime minister, including former BOJ Deputy Governor Masazumi Wakatabe, are cautious about an early rate hike. Since Takaichi has called on the BOJ to work with the government, the BOJ may delay the next rate hike until January. “If the BOJ does not raise interest rates in December, the yen could fall to nearly 160 per dollar,” said Takuya Kanda of Gaitame.com Research Institute Ltd. END [Copyright The Jiji Press, Ltd.]