According to informed sources, officials at the Bank of Japan generally believe that the likelihood of an interest rate hike next week has significantly increased, provided that Donald Trump’s assumption of the presidency does not trigger excessive negative surprises. Specifically, unless Trump causes significant disruptions to the market or alters expectations for the global economy in the early stages of his presidency, it is highly probable that the Bank of Japan will raise the rate from the current 0.25% following the two-day meeting ending on January 24.
This decision is not taken lightly; before the meeting, the Bank of Japan will conduct a meticulous review of economic data, market dynamics, and the impact of U.S. economic policies to ensure the reasonableness of the final policy decision. This week, Bank of Japan Governor Kazuo Ueda and his deputy Masayoshi Amamiya have explicitly stated that the January meeting will be a crucial moment to decide whether to raise interest rates, which aligns with market expectations for a rate hike this month. As a result, the exchange rate of the yen against the dollar has risen for two consecutive days, reaching a one-month high.
Rodrigo Catril, a Forex strategist at National Australia Bank Limited Sponsored ADR in Sydney, pointed out: "All sectors are eagerly awaiting the Bank of Japan's interest rate decision next week, and the officials' stance is becoming increasingly firm. Although Trump's tariff policy may become an uncertain factor, Japan is not the main focus of attention."
Regarding the economic outlook, Bank of Japan officials believe that Japan's economy and inflation will continue to develop along their predicted trajectories, providing confidence for achieving a stable 2% inflation target. Kazuo Ueda has repeatedly emphasized that if price and economic trends align with the bank's forecasts, it will timely adjust its monetary easing policy.
According to informed sources, the Bank of Japan may raise its inflation forecasts for the current fiscal year and the next fiscal year (excluding fresh food and Energy) to support its decision to raise interest rates. Since the last meeting in December, officials' confidence in wage increases has also strengthened, especially after the Bank's branch managers' meeting earlier this month. They expect this year's spring wage negotiations to yield positive results similar to last year, as Japanese companies gradually normalize wage increases.
Ueda Kazuo stated that, apart from the economic outlook in the USA, the momentum of wage growth is one of the key factors to closely watch when determining the timing for interest rate hikes. Although Bank of Japan officials hope that Trump's second administration can start smoothly, they also recognize the need to stay vigilant against potential risks.
It is worth mentioning that Hishimi Noritzumi clearly stated in a speech to Yokohama business leaders on Tuesday that the Board of Directors of the Bank will discuss the possibility of raising interest rates next week. He emphasized: “Determining the right timing for implementing monetary policy is both difficult and crucial.” He also revealed that the Board of Directors would decide whether to raise the policy interest rate based on the economic outlook summarized during the monetary policy meeting on January 23-24.
These comments further highlight the possibility of the Bank of Japan raising interest rates this month. Most observers believe that the Bank of Japan will raise borrowing costs in January or March. Hishimi Noritzumi also pointed out that both upside and downside risks exist, and he and Ueda Kazuo agree that this year's wage growth momentum and US economic policies under the new government are worthy of close attention.
In the last scheduled speech before the Bank's policy board member meeting next week, Hishimi Noritzumi expects wage growth to remain robust this year. He mentioned labor shortages, rising minimum wages, and recent survey results showing that wage increases have reached or exceeded levels from a year ago when unions and companies agreed to the largest wage increase in 30 years.
Editor/ping