By Satoshi Sugiyama
TOKYO (Reuters) – More than half of economists in a Reuters poll said the Bank of Japan will raise interest rates again at its December meeting as a strong economy and the yen’s falling value prompt policymakers to act. But there is concern.
The BOJ is likely to keep interest rates high even in the wake of Donald Trump’s Nov. 5 election victory, most economists said, as markets brace for a range of inflationary policies under the new administration.
In the Nov. 13-21 survey released Friday, 56 percent of economists, 29 of 52, said the BOJ would raise borrowing costs again by the end of the year, compared with 49 in last month’s survey. The percentage was The median forecast for last year’s rate was 25 basis points higher at 0.50%.
Analysts said the economy and prices are on track with the BOJ’s outlook, with declining global economic risks and a weaker yen pushing the Japanese central bank to change rates.
“If the BOJ does not act in December, there is a risk that the yen will weaken further by the end of January when the next meeting is scheduled, and that the bank will lag behind in its response,” said Kazutaka Maeda, a The economist said. Meiji Yasuda Research Institute.
The weak yen – which had pushed up import costs and inflation – was among the factors that led to the BOJ’s decision to raise interest rates in July.
BOJ Governor Kazuo Ueda said this week that the economy is moving toward wage-led inflation and warned against keeping borrowing costs too low. He said the BOJ would “seriously” consider the impact of the yen’s move on the economic and price outlook.
About 90 percent of economists, or 44 out of 49, predicted the BOJ would raise rates to 0.50 percent by the end of March. Two that had forecast a rise of 0.50% by the end of the year expected the rate to be 0.75% by the end of the first quarter.
Of the small sample of 20 who provided monthly forecasts and expected no rate hikes or further hikes next year, 90%, or 18, chose January. That was up from nearly three-quarters in the October poll and 60 percent in September.
Additionally, 96 percent of economists, or 24 out of 25, expect Trump’s return to the White House to encourage the BOJ to raise interest rates, the poll found.
Respondents said the president-elect’s economic policies, including tax cuts and tariffs, would reignite inflation in the U.S., adding to inflationary pressures in Japan.
“In reality, the BOJ will want to raise interest rates cautiously, taking into account the impact on the economy and other factors,” said Mitsu Fujiyama, senior economist at the Japan Research Institute.
“But with imported inflation causing prices to rise again, it feels like they have no choice but to raise interest rates.”
The median of the 26 economists who offered their view on what the BOJ’s terminal rate should be was 1.00%, with a range of 0.50% and 2.50%.
The BOJ ended negative interest rates in March and raised its short-term policy rate to 0.25% in July as Japan moved closer to permanently achieving its 2% inflation target.
Japan’s economy expanded by an annualized 0.9% last quarter, slowing from the previous three months although an unexpected rise in consumption was a bright spot.
(Other stories from Reuters World Economic Survey)
