BOJ’s Deputy Chief Himino Signals Chance of Rate Hike Next Week

(Bloomberg) — Bank of Japan Deputy Governor Ryozo Himino signaled the possibility of an interest rate hike next week by saying that the board will be discussing it, making it clear that the option is on the table. 

“In conducting monetary policy, it is difficult but essential to judge the right timing,” Himino said Tuesday in a speech to local business leaders in Yokohama. “The board will have discussion to decide whether to raise the policy rate or not, based on the outlook to be compiled” at the monetary policy meeting between Jan. 23-24, he said.

The comments highlight that the BOJ isn’t ruling out raising borrowing costs this month, with most BOJ watchers seeing it coming in either January or March. Himino also said there are various risks both for the upside and downside, and echoed Governor Kazuo Ueda by saying momentum for this year’s wage hikes and US economic policy under a new administration warrant attention.

The yen weakened as much as 0.3% to 158.02 against the dollar as Himino spoke, before rebounding to around 157.50 shortly after. Japanese government bond futures pared losses, while the Topix share index hit its low for the day. Overnight index swaps are pricing in about a 60% chance of a rate hike at the BOJ’s meeting next week, and an 83% chance by March. 

In the last scheduled speech by a BOJ policy board member ahead of next week’s meeting, Himino indicated his expectations for wage increases to be solid this year. He cited labor shortages, a rise in minimum wages and recent surveys that, he said, showed gains broadly at or above the levels seen a year ago when labor unions and businesses agreed on the strongest pay raises in three decades. 

Another key question among BOJ watchers is how long the central bank wants to monitor uncertainties in US economic policy. Himino said that that’s something the BOJ has to keep watching, although the broad picture may become clearer shortly after Donald Trump takes over the White House next week, a few days before the BOJ’s policy meeting.    

“Continuous monitoring will be warranted, but the inaugural address next week will give us an idea on the broad direction of policies the new administration will pursue,” Himino said. Many experts “expect the U.S. economy to continue performing strong over the coming period, which seems to be in contrast with the outlook entertained around August last year when downside risks were the focus.”

The deputy chief also reiterated that the central bank will raise rates if its outlook continues to be realized. Causing a surprise isn’t desirable except in times of economic crisis, Himino said. At the same time, it’s impossible to have markets fully price in the result of policy meetings, as the bank makes its final decision through discussion at its meetings, he said. 

BOJ officials are likely to discuss raising their inflation outlook at the policy gathering, although no rate decision has been made yet at this point, people familiar with the matter told Bloomberg earlier this month. That’s mainly due to a recent surge in the cost of rice and the weakening of the yen since the last outlook report in October, the people said.

“Developments in prices and inflation expectation, including the economic mechanisms behind them, seem to have been largely on the path,” Himino said. “If this outlook will continue to be realized, the Bank will raise the policy interest rate accordingly and adjust the degree of monetary easing.”

–With assistance from Mia Glass and Ken McCallum.

(Updates with more details from the speech, background.)

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