Bank of Japan’s Next Rate Hike Expected in December
Bank of Japan Governor Kazuo Ueda recently attended a session in the financial affairs committee at the lower house of parliament in Tokyo, where he discussed the central bank’s plans for interest rate adjustments. Economists, FX strategists, and Japan-focused fund managers are divided on the timing of the Bank of Japan’s next rate hike, according to a new CNBC International survey conducted from September 2-13.
Governor Ueda indicated last month that the Bank of Japan would continue to raise interest rates if inflation remained on track, while also closely monitoring financial market conditions. Despite this statement, there is a consensus among the 32 analysts polled by CNBC that there will be no change at the upcoming BOJ meeting, which concludes this week.
However, the outlook for the October and December meetings is much less certain. Reasons cited for the unlikelihood of a September rate change include the early August volatility spike, the ruling LDP leadership contest, and the need for further evidence of wage-price dynamics. Jessica Hinds, director in Fitch Ratings’ economics team, stated, “We think the central bank will be keen to move gradually and allow the impact of the July rate hike to be fully felt.”
Survey Findings and Analyst Predictions
According to CNBC’s survey, 18.75% of respondents expect a rate hike at the October meeting, while another 25% believe it is possible. About 25% of analysts predict a rate hike in December, with an additional 31.25% considering it a “live meeting,” meaning the BOJ could adjust monetary policy based on economic data.
Gregor Hirt, global chief investment officer for multi-asset at Allianz Global Investors, sees a strong chance of a rate hike this year, most likely in October. He noted, “With solid inflation and wage data, alongside resilient growth, the BOJ may want to get one more hike in while the global repricing of yield curves supports Japanese bonds, helping to ease the impact of any policy adjustments.”
Masamichi Adachi, the chief Japan economist at UBS, also predicted an October rate hike if the BOJ Tankan survey remains positive and market conditions remain stable. However, Richard Kaye, a portfolio manager for Japan equities at Comgest, believes it is highly unlikely that the central bank will raise rates again this year, especially if the Japanese yen continues to appreciate.
Impact on Japanese Yen and Portfolio Positioning
The Bank of Japan’s decisions on interest rates have a significant impact on the Japanese yen and portfolio positioning. CNBC surveyed 28 analysts about their end-of-year forecast for the Japanese yen against the dollar, with the average projection being 140.2. The yen recently strengthened against the dollar as traders anticipated a larger rate cut from the U.S. Federal Reserve.
Zuhair Khan, managing director and senior funds manager at UBP Investments, highlighted the importance of portfolio positioning in a potentially strengthening yen environment. He stated, “Our overall positioning is more based on the expectation that the sharp rise in the Japanese market until the end of July will now change to a more range-bound market. We are long laggards and short stocks that have run up too much.”
Kei Okamura, Neuberger Berman senior vice president and Japanese equities portfolio manager, expressed optimism for a stronger yen and resurgence in the domestic economy, which he believes will benefit smaller to mid-cap stocks. He emphasized the importance of investing in high-quality companies with strong pricing power and a focus on capital management and corporate governance.
Looking Ahead
As the Bank of Japan prepares to issue its September policy statement, market participants are eagerly awaiting updates on the central bank’s interest rate decisions and their implications for the Japanese economy. With uncertainty surrounding the timing of the next rate hike, analysts and investors continue to closely monitor economic indicators and market conditions for clues on the BOJ’s future monetary policy actions.