Shoppers in Tokyo, Japan, Saturday, September 16, 2022.
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Bank of Japan Deputy Governor Ryozo Himino said the Bank of Japan will discuss whether to raise interest rates next week as prospects for continued wage increases strengthen and the outlook for U.S. policy becomes clearer during President-elect Donald Trump’s inauguration speech.
Speaking to business leaders in Yokohama on Tuesday, Jimino said it was “not normal” for real interest rates to remain negative once Japan overcomes the shock and factors leading to deflation.
He said various surveys and reports from the central bank’s regional branches have boosted hopes that wage growth will remain strong this year.
Cimino also said that the U.S. economy may remain strong for the time being, and the “general direction” of U.S. economic policy may become clear in Trump’s inauguration speech on January 20.
“The board will discuss whether to raise interest rates next week and make a decision based on the economic and price forecasts presented in our quarterly outlook report,” he said.
The comments came ahead of the Bank of Japan’s two-day policy meeting ending on January 24, with some analysts expecting the bank to raise short-term interest rates from the current 0.25%. The board will also publish new quarterly growth and price forecasts as a basis for setting monetary policy.
Last month, Japanese Governor Kazuo Ueda postponed an interest rate hike, citing uncertainty over domestic wage prospects and Trump’s policies. Cimino’s views on wages and the outlook for U.S. policy have been closely watched by the market.
In a quarterly report analyzing the regional economy released last week, the Bank of Japan said rising wages were spreading to companies of all sizes and industries, suggesting conditions for a near-term interest rate hike continue to be in place.
Sources told Reuters that the prospect of continued wage rises and higher import costs due to a weak yen has heightened concerns within the Bank of Japan over rising inflationary pressures, which could lead to an upward revision of price forecasts for this month.
The Bank of Japan ended negative interest rates in March and raised its short-term interest rate target to 0.25% in July as the country expects to sustainably achieve the bank’s 2% inflation target.
Ueda has said he is ready to raise interest rates further if expanding wage increases can support consumption and allow companies to continue raising prices not only for goods but also for services.
