Former BoJ board member Makoto Sakurai. — Bloomberg
TOKYO: The likelihood is increasing that the Bank of Japan (BoJ) will wait until March for its next interest rate hike, given growing uncertainties stemming from President-elect Donald Trump, according to a former policy board member.
“There seems to be too much uncertainty as Trump comments on various matters,” said former board member Makoto Sakurai in an interview.
“There may not be enough reasons to support a rate hike in January.”
Sakurai spoke as BoJ watchers are looking for hints on whether the rate move may take place this month or later.
Sakurai saw the likelihood of a hike in March as high as 70%, as the BoJ may be better off waiting out at least the first couple of months of the new Trump administration.
The interview took place shortly after Trump called for absorbing Canada, declined to rule out using military force to seize the Panama Canal and Greenland, and promised to rename the Gulf of Mexico the Gulf of America.
The series of comments left little doubt that he plans to take foreign policy to new precedent-shattering levels, once he takes over the White House in less than two weeks.
According to Sakurai, the timing of the next hike is probably coming down to January or March, after the latest hike in July was triggered by a rapid weakening of the yen.
The Japanese currency has dropped to an almost six-month low this week, approaching a key threshold of 160.
Sakurai, who has kept in close contact with BoJ officials after completing his five-year board member term in March 2021, said he doesn’t believe the current yen level alone would push the bank toward a hike this month.
“The yen may go past 160” if the BoJ holds rates in January, Sakurai said.
“But that makes the decision to move in March easier.”
Governor Kazuo Ueda has stressed the need to closely watch US economic policy under the new presidency, and declined to say how long he would need to keep monitoring.
That left room for different interpretations among BoJ watchers.
While Sakurai saw risks surrounding Trump as a reason to wait, many economists are of the view that the BoJ should move policy before risks materialise.
They noted Japan’s economic conditions have been moving in line with the bank’s view.
Ueda reiterated his stance earlier this week that the central bank will raise rates if economic conditions keep improving.
Traders see around a 50% chance for the rate hike at the end of BoJ meeting on Jan 24. By the March meeting, that climbs up to around 80% as of Wednesday.
Besides the United States economy, the momentum for spring wage talks is a key point Ueda has stressed.
If there are no global economic shocks, initial pay negotiation results coming out in March could be a catalyst for a hike that month, Sakurai said, as was the case last year.
“The BoJ will probably raise rates roughly twice a year,” he said, expecting a slow drip of hikes for the next few years.
“The pace will probably vary, can be faster or slower depending on economic situations at the time. There is no rush.” — Bloomberg
