MNI INTERVIEW: BOJ July Hike Probability 40% - Kameda
MNI speaks to former BOJ chief economist Seisaku Kameda.
There is a roughly 40% chance that the Bank of Japan will hike its policy rate at this month’s meeting, given favourable trends in the Tankan survey, wages and services prices, former BOJ chief economist Seisaku Kameda told MNI.
“If I was asked whether there will be a rate hike or not, I would say no, as it is unlikely that the BOJ would raise the policy rate at the same time as it is deciding on details of reducing its purchases of government bonds,” Kameda, now executive economist at Sompo Institute Plus, the insurance giant’s research arm, said in an interview. (See MNI POLICY: BOJ Bond-Buy Reduction Scale Due Post-Consultations)
But, while Kameda said a hike is more likely in either September or October, particularly given the minimal danger that a delay to monetary tightening could send inflation uncontrollably over the 2% target, he added that recent data was enough to justify an increase at the July 30-31 meeting.
The Tankan survey shows corporate inflation expectations could be anchored at around 2%, allowing the BOJ to judge that Japan has finally escaped from deflation. But, while wages data for May has showed an increase, with scheduled earnings, which exclude bonuses and overtime, accelerating to a 2.7% annual gain from 2.2% in April, this is probably still too low for the BOJ to feel confident of a sustainable wages-price cycle, he noted.
WAGES PICKING UP PACE
Officials will want to see this measure of pay gain an annual 3% in data for June or July, given that basic salaries rose by 3.56% this fiscal year, up from 2.12% in the preceding period, Kameda said,
“The 2.7% rise isn’t enough” he said.
The BOJ board’s median forecasts for core-core CPI should remain at 1.9% for this and the next fiscal year and at 2.1% for fiscal 2026, given that prices and wages data have largely been in line with forecasts, he said. While the median forecast for real GDP this fiscal year will be revised down from +0.8%, this will be for technical reasons and will not affect the overall economic assessment, he added.
Kameda said he expects the BOJ to reduce JGB purchases by around JPY2 trillion for the first year from the current level of about JPY6 trillion and then make another JPY2 trillion cut for the following year.
“The BOJ is considering a relatively big bond buying reduction, judging from the ‘sizable scale’ mentioned by the governor,” he said.
Still, Bank officials will want to be sure that its plans are acceptable to market players, Kameda said, adding that the BOJ wants to establish a scheme which allows it reduce the scale of bond buying without influence from the government. (See MNI POLICY: BOJ Examines Framework To Make JGB Operations Easier)