According to a Reuters report citing sources familiar with the matter, the Bank of Japan (BOJ) is inclined to keep interest rates unchanged at the upcoming meeting next week, allowing policymakers extra time to gauge overseas risks and signals on next year’s wage prospects.
With the possibility of such a scenario, the decision may escalate chances of an interest rate hike in January or March, pegged on the extent of projected wage increase for the forthcoming year.
However, there’s no unanimous consensus within the central bank on the final call, as some board members still argue that Japan has met the conditions required to up the rates in December. The decision will be influenced by the confidence each board member holds on Japan’s chances of achieving sustained, wage-driven price increases.
In addition, an unexpected policy adjustment could also occur if subsequent events, such as the U.S. Federal Reserve’s rate-setting meeting, incite a fresh yen downturn that fuels inflationary pressure.
Despite the near-zero borrowing costs in Japan, many policymakers feel no immediate pressure to initiate a rate hike due to the limited risk of inflation surge, while some noted that it is reasonable to take the time to carefully analyze various economic indicators.
The BOJ is set to hold its last policy meeting of the year on December 18 to 19, where the nine-member board will deliberate whether to raise short-term interest rates from the current 0.25%.
According to a Reuters poll conducted last month, just over half of economists expect the BOJ to hike rates in December and almost 90% foresee a rise to 0.5% by the end of March. On the contrary, market anticipations currently indicate less than a 30% likelihood of a December rate increase.
