MNI POLICY: BOJ Rate View Intact, Despite Dovish PM Remarks

MNI (TOKYO) - Recent dovish remarks made by the Japanese Prime Minister will not impact the Bank of Japan’s policy-rate strategy, with officials not ruling out a December hike should fundamental conditions hold, MNI understands.

Prime Minister Shigeru Ishiba said recently he doubted whether conditions warranted further interest-rate hikes, which saw the yen weaken to a one month low of JPY147 and pushed up the Nikkei 225, an about-face from comments made in August that supported policy normalisation.

While Bank officials largely agree that current economic and financial conditions do not warrant an imminent rate hike at the October meeting, they see the uncertain U.S. economy’s impact on financial markets as the key risk that could push a rate hike back to January. (See MNI INTERVIEW: BOJ Dec Rate Hike Hinges On US Outlook - Kameda)

However, they have not abandoned the possibility of a December rate hike at the earliest should the economy and prices move in line with the bank’s projection and are keenly aware of the dangers of falling “behind the curve.”

ELECTIONEERING

Ishiba on Thursday backtracked his comments, noting he did not want to pressure the central bank.

BOJ Governor Kazuo Ueda recently reiterated that the central bank would embark on rate hikes cautiously, noting the Bank had time to scrutinise developments.  

Ishiba, a one-time former defence minister, succeeded Fumio Kishida as prime minister last month and has since called a snap election for Oct 27. Bank officials believe Ishiba’s comments on monetary policy are likely directed at voters suffering from higher rates and will not weigh on the BOJ’s decisions.

WAGES KEY

BOJ officials are striving to gather data on wage-hike trends at major firms, which will strongly influence smaller company pay increases, with an eye on how this will feed into April price revisions.

BOJ officials earlier this year were confident of considerable wage hikes before the April start of this fiscal year. 

The publication of the Rengo survey on March 15, which showed 5.28% wage increases on average, paved the way for the end of the negative interest rate and yield curve control at the March 18-19 meeting.

The Bank will again look to the next Rengo survey, which should publish some time ahead of the March 18-19 2025 meeting, to ascertain the strength of wages.