MNI POLICY: BOJ Board To Discuss Jan Hike, Hold Possible
MNI (TOKYO) - The Bank of Japan board will consider hiking the policy rate to 0.5% when it meets next week due to strong wage growth momentum, but it sees no issue holding the rate steady should market volatility increase following President-elect Donald Trump’s inauguration on Jan 20, MNI understands.
Upside price pressure will not immediately rise to a level that could prompt the Bank to react with rapid rate hikes should the board decide to hold when it meets over Jan 23-24, despite the weaker yen driving inflation higher than anticipated in October.
Recent remarks by Governor Kazuo Ueda and Deputy Governor Ryozo Himino signaling the board would debate a rate hike next week were aimed at preparing the market and lawmakers for a move higher. However, an increase is not guaranteed.
THE CASE TO PAUSE
A hold would give Bank officials time to collect more quantitative wage data and gauge the outlook for the U.S. economy. The momentum of wage hikes at smaller firms driven by the tight labour market, noted in the Jan 9 branch manager’s report, has encouraged Bank officials despite reservations over their scale as some smaller firms remain undecided.
Ueda has expressed a willingness to raise the policy rate in accordance with price improvement to secure room to cope with economic conditions under a normalised policy framework. While the governor is concerned premature hikes could revert the economy to a deflationary or low-inflation environment and curtail the economic recovery, he is weighing this risk against the desire to avoid rapid future hikes should the Bank fall behind the curve.