BOJ Ready to Hike Interest Rates, Yen and Global Markets on Alert
Bank of Japan (BOJ) officials are reportedly ready to raise interest rates at their December 19th policy meeting, provided there are no major shocks to the economy or financial markets. The hike being discussed is around 25 basis points to 0.75%, which would bring Japan's benchmark interest rate to its highest level since 1995. The BOJ is also expected to signal that interest rate hikes could continue if its economic outlook proceeds as planned, although it remains cautious about how far it will raise rates.
Market expectations for an interest rate hike surged after BOJ Governor Kazuo Ueda said the central bank's board would make an "appropriate" decision on a rate hike, similar to the signal he gave before his previous rate hike earlier in the year. Swap markets now reflect a roughly 90% chance that the BOJ will raise interest rates this month. The Japanese government also appears to be standing in the way, with key members of Prime Minister Sanae Takaichi's administration reportedly ready to support if the BOJ decides to move.
On the fundamental side, the BOJ believes the impact of US tariffs and rising corporate profits provides room for Japanese companies to continue raising wages, thus increasing the chances of achieving the central bank's economic projections. However, the BOJ still views this move as an adjustment to its loose policy, not an aggressive tightening, as real interest rates remain below zero and financial conditions remain supportive of the economy. Going forward, the BOJ will continue to evaluate how the economy responds to each interest rate hike to find a level closer to the neutral interest rate, which they estimate to be in the range of 1% to 2.5%. (az)
Source: Newsmaker.id
