Expectations for Rate Hike Timing Becoming More Diverse
In the latest survey, most economists believe the Bank of Japan will take action by January next year, possibly raising the benchmark interest rate from 0.5%. Although October is still seen as the earliest potential time for a rate hike, support has declined, with more respondents starting to bet on December or January next year. The market's judgment is gradually spreading from a single point in time, reflecting uncertainty about the future path.
Political Factors Reinforce Uncertainty
The resignation of Prime Minister Ishiba Shigeru has plunged Japan's political scene into a sensitive period. The Liberal Democratic Party will undergo a leadership election, followed by a parliamentary vote to elect a new prime minister. This political process has led investors to doubt the continuity and stability of policies, prompting institutions like BNP Paribas to postpone rate hike expectations, believing the Bank of Japan may act only after the political dust settles.
Interlinked Impact of Global Environment
The U.S. monetary policy is also influencing the steps of the Bank of Japan. The market widely expects the Federal Reserve to lower rates soon to support the slowing U.S. economy. This trend could narrow the U.S.-Japan interest rate differential, affecting the yen's movement. Some analysts worry that if the Federal Reserve continues to cut rates while the Bank of Japan remains watchful, it may lead to being passively left behind in terms of inflation and monetary stability.
Signals from Inflation and Wage Data
Japan's key inflation indicator has remained above 2% for three consecutive years, and the latest data shows positive signs in wage growth. In July, nominal wages recorded the largest increase in nearly seven months, and real wages also experienced growth for the first time this year. These data reinforce the market's judgment of a gradually forming virtuous cycle between prices and wages, with some experts still optimistic about the possibility of an October rate hike.
Market Divergence and Central Bank Stance
About 40% of economists worry that the Bank of Japan may be lagging behind in addressing inflation, while an equal proportion believes the Bank still has room to maneuver. Governor Ueda Kazuo has repeatedly emphasized that the overall inflation rate has not yet stabilized above the target level. Some observers think the Bank's explanations on prices lack transparency, increasing the difficulty of market interpretation. Mizuho Securities and NLI Research Institute suggest there remains a high possibility of a rate hike within the year.
Key Future Observation Points
The Bank of Japan will announce its decision after the September meeting, with the market paying close attention to how Governor Ueda Kazuo describes the inflation path and risk assessments. On October 30, the Bank will also release the quarterly economic outlook report, providing more clues for policy choices through the Tankan survey, regional branch feedback, and union wage negotiation signals. By then, the suspense regarding a rate hike within the year might become clearer.
