(Bloomberg) — Almost three quarters of Bank of Japan watchers predict an interest rate hike next week according to the latest Bloomberg survey, reflecting a jump in expectations after Governor Kazuo Ueda said his board will be discussing the move.
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Some 74% of 53 economists forecast a rate increase at the end of the two-day meeting on Jan. 24, according to the poll, rising from 52% in the previous survey. Some 23% expect the move to come in March.
The results come after Ueda reinforced his deputy Ryozo Himino’s message this week that his board will consider a rate hike at this meeting, boosting the yen and expectations for action. Many of the economists noted the hike is likely unless Donald Trump jolts global financial markets, after he returns to the White House four days before the BOJ’s policy decision.
“The decision will heavily depend on financial market conditions immediately before it,” Masamichi Adachi, chief Japan economist at UBS Securities, wrote in his survey response. “A rate hike is likely if there is no shock.”
BOJ officials see a good chance of an interest rate hike as long as Trump’s return doesn’t trigger too many negative surprises, people familiar with the matter told Bloomberg earlier this week.
Almost half of the surveyed economists said that Trump is either unlikely or very unlikely to dampen the global economic outlook or destabilize financial markets before the BOJ meeting. About a quarter said it’s likely or very likely to happen, with the rest saying it’s hard to tell.
Since the last meeting in December, data have shown the cost of living in Japan has stayed elevated, and a gradual economic recovery is under way. The country’s economic and inflation situation justifies an increase in borrowing costs at this meeting, according to 90% of the analysts.
Ueda has repeatedly said that momentum for wage increases and uncertainties over US economic policy are the two main factors that need to be cleared before a hike. This week, the governor and his deputy suggested that they have more confidence over the wage momentum after the BOJ’s branch managers’ meeting earlier this month.
Economists appear to share that view, as 78% said there is already enough momentum for spring wage negotiations to increase the policy rate next week.
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“Chances are very high that the BOJ will go ahead with a hike this time,” said Taro Kimura, economist at Bloomberg Economics. “In fact, it will probably be harder to explain not hiking,” with the economy coming in line with the BOJ’s projection, and the inflation outlook set to be around its target for the next few years, he said.
The weak yen is also seen as a key factor. Some 69% of economists said that the yen’s recent drop raises the odds for a hike at this meeting. The currency hit a six-month low against the dollar last week, coming closer to a key threshold of 160, before paring losses this week amid increased expectations for a BOJ rate change.
“The yen having come closer to 160 will encourage the BOJ toward another hike,” said Eiji Kitada, chief economist at Hamagin Research Institute.
This week saw a highly anticipated speech from Himino, one the BOJ’s two deputy governors, where he indicated the chance of a rate hike.
Some 68% of the economists said that his remarks raised the chance of a January hike, while 15% said it’s neutral. Another 15% said it’s hard to tell the implications of the speech.
“Deputy Governor Himino’s speech signaled that the uncertainty over the sustainability of wage hikes and the influence of US government policy has diminished,” said Marcel Thieliant, head of Asia-Pacific at Capital Economics. “Accordingly, we expect the bank to raise rates at its January meeting.”
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