Investing.com– The Bank of Japan (BOJ) is leaning toward maintaining its current interest rates at next week’s policy meeting, as officials seek more time to evaluate global risks and the outlook for wage growth in 2024, Reuters reported on Thursday, citing sources familiar with the matter.
While some policymakers believe the conditions for a rate hike may already be in place, others prefer to delay action to gather more data on whether wage increases will lead to sustained, inflation-driven price rises. This hesitation reduces the likelihood of a December rate hike but raises the chances of a move at the BOJ’s January or March meetings, the report said.
The BOJ’s policy decision, set for December 18-19, will follow closely on the heels of the U.S. Federal Reserve’s meeting. A surprise move by the Fed, such as holding rates steady and triggering a dollar surge, could prompt the BOJ to act in response to a potential yen depreciation, the sources cited by Reuters, said.
For now, many BOJ policymakers appear cautious, given the absence of significant inflationary pressure. Government officials have also urged caution over future rate hikes.
The BOJ raised rates to 0.25% in July after ending its negative interest rate policy earlier this year. While the central bank remains optimistic about Japan’s moderate economic growth, steady wage increases, and inflation exceeding its 2% target for over two years, it is reluctant to act hastily. Officials want to avoid signaling urgency, especially as the yen’s recent rebound has eased import price pressures, the report added.
The central bank is expected to scrutinize next year’s corporate wage negotiations and its January 23-24 meeting could offer more clarity on interest rates, according to the report.
Meanwhile, uncertainty over U.S. President-elect Donald Trump’s economic policies adds another layer of caution to the BOJ’s decision-making process.
Markets currently price less than a 30% probability of a December rate hike, contrasting with the view of over half the economists polled by Reuters, who expect BOJ to raise rates next week. About 90% forecast the BOJ to have hiked rates to 0.5% by end of March.
