BOJ Rate Hike Unlikely in December, Economists Eye Wage Trends

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The Bank of Japan (BOJ) is expected to maintain its current interest rate of 0.25% at its December policy meeting, according to a Reuters survey of economists conducted between December 4 and 11. This marks a shift from the previous month's poll, where a slight majority anticipated a rate hike by the end of the year.

In the latest poll, 58% of respondents, or 33 out of 57, predicted the BOJ would hold rates steady in December. This is a rise from 44% who shared this expectation last month.

The BOJ last raised interest rates in July. Reports suggest the bank is inclined to maintain the status quo during the December 19 meeting, focusing instead on external economic risks and the outlook for wage negotiations next spring. Despite the cautious approach, all respondents in the latest poll believe the BOJ will eventually raise rates to 0.50% by March, diverging from the global trend of rate reductions.

Economists noted that while inflation and wage data align with BOJ projections, concerns about global economic risks persist. Mari Iwashita, chief market economist at Daiwa Securities, emphasized the importance of observing U.S. economic policies under the incoming Trump administration before making further decisions. Additionally, a cooling yen depreciation has weakened the case for a December rate hike.

Among a subset of economists providing detailed forecasts, January was the favored month for a potential rate hike. The group cited Japan’s fragile economic recovery, with household spending declining for three consecutive months and inconsistent factory output, as reasons for caution.

Third-quarter GDP data revealed faster-than-expected growth, though private consumption remained subdued, underlining the tentative nature of the recovery. While regular wages have risen annually by 2.5%-3% and inflation has stayed above the BOJ's 2% target for over two years, the economic rebound remains uncertain.

Most economists expect wage increases during next year's spring labor negotiations to average 4.7%, slightly below this year's 5.1% but higher than the previous year's 3.58%. On the global front, nearly all respondents expressed concerns about potential adverse effects of proposed U.S. tariffs on Japan’s economy, though implementation is not expected to impact the real economy until late 2025 at the earliest.

 

 

 

 

 

 

 

 

 

Paraphrasing text from "Reuters" all rights reserved by the original author.