MNI INTERVIEW: Conditions Exist For BOJ Dec Rate Hike – Sekine
MNI (TOKYO) - Economic and price conditions exist for a 25-basis-point hike to the Bank of Japan’s 0.25% policy rate at the Dec 18-19 meeting, a former BOJ chief economist told MNI, noting an increase at the next meeting would align with the bank’s forecasts.
“Judging from economic and price conditions, there is no reason that the bank cannot raise the rate in December,” said Toshitaka Sekine, professor at the School of International and Public Policy at Hitotsubashi University.
The Japanese economy demonstrated all the conditions necessary for a hike, he added, pointing to the tight labour market and elevated corporate profits, which should maintain wage rises.
“But it will depend on the degree of uncertainties or fog surrounding the Japanese economy and prices,” said Sekine, who left the BOJ in 2020. A potential December hike would be consistent with the Bank’s pledge to adjust the degree of easy policy should economic activity and prices move in line with the bank’s forecast, he added, noting a January or March move would also not leave the BOJ behind the curve on inflation.
The U.S. economy presented the most significant risk, he said, echoing comments made in August. (See MNI INTERVIEW: US Export Demand Key For BOJ Tightening- Sekine) “There are lots of uncertainties over the U.S. economy, tariffs and government policies in addition to geopolitical risks,” Sekine cautioned. “Nobody can predict their outlook, so taking a wait and see attitude is one option for the BOJ.” December’s policy decision will hinge on how seriously board members view the degree of uncertainties, he continued.
A policy rate of 1% over the longer term, “isn’t ridiculous,” he added, due to the level of real interest and inflation rates. “But whether a further rise is accommodative or not depends on the inflation rate at that time,” he argued. (See MNI INTERVIEW: BOJ To Aim For 1.5% Policy Rate - Sakurai)
FX IMPACT
While Sekine downplayed the significance of the yen’s recent fall towards JPY155 against the greenback on the Board’s upcoming policy decision, he noted Governor Ueda’s recent acknowledgement of the impact forex moves have had on the economy and prices.
“I guess that Ueda’s remarks are based on evidence that bank staff calculated or analysed,” he added, noting the focus should be on the degree of pass-through of the weak yen and whether the BOJ believed this had strengthened.
The Bank should have clarified its position on this impact within its October Outlook Report, he said. “It is regrettable that the BOJ didn’t publish it as the bank should clarify whether the weak yen is favourable or unfavourable for the achievement of the 2% price target,” he continued.
COMMUNICATIONS CHALLENGE
Sekine dismissed as foolish market calls for greater BOJ signals ahead of a policy-rate adjustment, pointing to criticism following July’s hike. “BOJ officials cannot argue, but I on behalf of the BOJ would like to say that it is wrong for market players to complain to the BOJ,” Sekine said.
Each board member can share their view, but decisions are made collectively, he added, noting the Governor is also restricted from providing signals ahead of meetings. “Instead, the BOJ should clarify a policy reaction function,” Sekine argued. “I believe that the BOJ under Governor Ueda has put this mission into practice.”