Bank of Japan weighs interest rate hike next week

Bank of Japan (BOJ) officials are considering a potential interest rate hike next week, but are also open to waiting depending on incoming data and market developments, sources familiar with the matter told Bloomberg on Wednesday.

Even if the BOJ delays until January or later, officials believe the cost would be minimal as there is little risk of inflation exceeding expectations. Some officials are open to a rate hike at this meeting if proposed.

The news caused a temporary weakening of the yen against the dollar after volatile trading earlier in the day. The yen briefly touched 152.52 against the greenback before settling back around 151.60.

The markets are speculating about the timing of the BOJ’s next rate hike, with December and January being potential options. Mixed signals from officials and media reports have added to the uncertainty.

BOJ Governor Kazuo Ueda mentioned in a Nikkei interview last month that rate hikes are “approaching.” Shortly after, Jiji Press reported internal concerns at the bank regarding the possibility of raising rates prematurely.

Last week, the dovish policy board member Toyoaki Nakamura mentioned that he is open to a potential interest rate hike but emphasised the importance of analysing data before reaching a decision in the current month.

Officials are likely to raise rates soon, as the economy and inflation are on track with projections. They will make a final decision after reviewing data and market conditions before announcing the policy decision on Dec. 19.

Ueda and his board will discuss raising the benchmark rate from 0.25 per cent next week. The yen’s lack of significant weakening, unlike in July, has reduced the risk of inflationary pressure from the currency.

Key data points influencing the BOJ’s decision include US CPI data released later today, the Tankan business sentiment survey due on Friday, and the outcome of the Federal Reserve meeting scheduled just hours before the BOJ’s own policy decision.

Attribution: Bloomberg

Subediting: Y.Yasser