Bank of Japan observers: Another rate hike is expected before January next year, with October being the most likely time point

According to a survey, most analysts focusing on the direction of the Bank of Japan expect that the central bank will raise the benchmark interest rate before January next year; most anticipate a rate hike next month, but the proportion has decreased compared to previous surveys due to increased political uncertainty following the resignation of Prime Minister Shigeru Ishiba, which may delay the timing of the rate hike. Although no one predicts a rate change when the committee led by Bank of Japan Governor Kazuo Ueda makes a policy decision next Friday, according to a survey, 88% of the 50 economists surveyed believe that the Bank of Japan will raise the rate from 0.5% by the end of January. October remains the most favored time for a rate hike, but support for this option has dropped from 42% in the last survey after the July policy meeting to 36% in this survey. Looking ahead, expectations for a rate hike have warmed during December, with 22% now expecting a hike that month, up from 11% previously. About 30% expect a rate hike in January, which is roughly the same as the 33% in the last survey. Shigeru Ishiba's impending departure has prompted a campaign for leadership within the Liberal Democratic Party next month, followed by a parliamentary vote to select the next Prime Minister. Institutions such as BNP Paribas have pushed back their expectations for a rate hike to after October, citing increasing political instability and the likelihood of the Federal Reserve taking consecutive rate cuts to support the U.S. economy. Ryutaro Kono, chief Japan economist at BNP Paribas, wrote in a survey response: “The Bank of Japan is likely to continue to adopt a wait-and-see approach. We have pushed back our expectations for another rate hike from the second half of this year to next year. Due to the Bank of Japan's conservative strategy, the risk of falling behind the market pace is increasing.” Even though expectations for a rate hike in October have cooled, many still believe that this meeting will be dynamic, with nearly 70% stating that this is the earliest feasible time for a rate hike. The Bank of Japan will announce its next quarterly economic outlook report and decision results on October 30. At that time, it will comprehensively consider the results of the Tankan business survey released earlier this month and feedback from a branch manager meeting. The earliest signs of annual wage negotiations will also first appear in the largest labor union federation, which is likely to announce its target for wage increases for the next year. Economists surveyed have raised the median expectation for the final interest rate in the current rate hike cycle to 1.25%, up from 1% in the previous survey. In July, nominal wages for Japanese workers saw the largest increase in seven months, while real wages also achieved their first rise this year Yusuke Matsuo, a senior market economist at Mizuho Securities, stated: "As long as they believe that the cycle of wages and inflation will continue, I still think there is a possibility of another rate hike in October." Japan's key inflation indicators have remained at or above the Bank of Japan's target level of 2% for three consecutive years. According to this survey, about 40% believe that the Bank of Japan may be lagging behind in combating inflation, while 50% disagree with this view. About 60% of respondents expressed agreement with Kazuo Ueda's view that the overall inflation rate is still below the central bank's target level; however, the same proportion of respondents found the Bank of Japan's explanation of price trends difficult to understand. The Bank of Japan will hold its September meeting next week, while the Federal Reserve is expected to lower its policy interest rate at that time. In this survey, no analysts believed that the Fed's rate cut would make it easier for the Bank of Japan to raise rates, while one-third of analysts thought it would make it harder to raise rates. About 56% of analysts indicated that this outcome would not affect interest rate policy. Despite increased market expectations for a narrowing interest rate gap between the U.S. and Japan (as traders anticipate a Fed rate cut), the yen's exchange rate remains relatively weak. About three-quarters of observers of the Bank of Japan attribute the yen's weakness to the central bank's cautious stance, while about 13% do not believe this is the case, and some find it difficult to judge. Those monitoring the Bank of Japan's developments will closely examine Kazuo Ueda's description of the risk situation and the progress in achieving the bank's stable inflation target. The governor will hold a press conference after the decision announcement on September 19. Tsuyoshi Ueno, an executive researcher at NLI Research Institute, stated: "The focus of the September meeting is to understand how long it will take to see relevant signals before the next rate hike. How long will it take to confirm that the economic situation is stable? How vigilant are they regarding cost-push inflation pressures? I believe the possibility of a rate hike within this year is about 60%."