Bank of Japan Considers Interest Rate Hike

By Leika Kihara

YOKOHAMA (Reuters) – The Bank of Japan will debate whether to raise interest rates next week, as prospects of sustained wage gains heighten and the U.S. policy outlook becomes clearer in President-elect Donald Trump’s inaugural address, Deputy Governor Ryozo Himino said.

In a speech to business leaders in Yokohama, Himino stated it would “not be normal” for real interest rates to remain negative once Japan had overcome shocks and factors causing deflation.

Various surveys and reports from the central bank’s regional branches have heightened hopes for strong wage growth this year, he noted.

Himino also mentioned that the U.S. economy is likely to remain strong for the time being, and the “broad direction” of U.S. economic policy would likely emerge in Trump’s inaugural address on January 20.

“The board will discuss whether to raise interest rates next week and reach a decision, based on the economic and price projections laid out in our quarterly outlook report,” he commented.

These remarks come ahead of the BOJ’s two-day policy meeting concluding on January 24, during which some analysts expect the bank to raise short-term rates from the current 0.25%. The board will issue fresh quarterly growth and price forecasts that serve as the foundation for monetary policy decisions.

Himino’s comments on wages and U.S. policy have attracted market attention after Governor Kazuo Ueda previously cited uncertainty regarding the domestic wage outlook and Trump’s policies as reasons to delay rate increases last month.

In a quarterly report analyzing regional economies released last week, the BOJ noted that wage hikes were spreading across firms of all sizes and sectors, indicating that conditions for a near-term rate hike are continuing to materialize.

Sustained wage gains and increased import costs due to a weak yen have intensified the BOJ’s focus on rising inflationary pressures, potentially leading to an upgrade in its price forecast this month, as sources informed Reuters.

The BOJ ended negative interest rates in March and raised its short-term rate target to 0.25% in July, believing Japan was on track to permanently meet the bank’s 2% inflation target.

Ueda indicated readiness to further raise rates if broad wage hikes support consumption and allow companies to continue raising prices not only for goods but also services.