By Leika Kihara
TOKYO (Reuters) – The Bank of Japan is anticipated to boost rates of interest on Friday barring any market shocks when U.S. President-elect Donald Trump takes office, a move that will lift short-term borrowing costs to levels unseen for the reason that 2008 global financial crisis.
A tightening in policy would underscore the central bank’s resolve to steadily push up rates of interest, now at 0.25%, to close 1% – a level analysts see as neither cooling nor overheating Japan’s economy.
On the two-day meeting ending on Friday, the BOJ is more likely to raise its short-term policy rate to 0.5% unless Trump’s inaugural speech and executive orders upend financial markets, sources have told Reuters.
In a quarterly outlook report, the board can also be expected to boost its price forecasts on growing prospects that broadening wage gains will keep Japan on course to sustainably hit the bank’s 2% inflation goal.
A hike by the BOJ could be the primary since July last yr when the move, coupled with weak U.S. jobs data, shocked traders and triggered a rout in global markets in early August.
Keen to avoid a reoccurrence, the BOJ has rigorously prepared markets with clear signals by Governor Kazuo Ueda and his deputy last week that a rate hike was on the cards. The remarks caused the yen to rebound as markets priced in a roughly 80% probability of a rate increase on Friday.
There have been also hints of near-term motion last month. While the BOJ held off raising rates on the Dec. 18-19 meeting, hawkish board member Naoki Tamura proposed pushing up rates. A few of his colleagues also saw conditions fall into place for an imminent rate hike, minutes of the meeting showed.
With a policy tightening this week seen as a near certainty, market attention is shifting to Ueda’s post-meeting briefing for clues on the timing and pace of subsequent increases.
As inflation has exceeded the BOJ’s 2% goal for nearly three years and the weak yen has kept import costs elevated, Ueda is more likely to stress policymakers’ resolve to proceed raising rates of interest.
But there may be good reason to tread cautiously. While the International Monetary Fund raised its forecast for global growth in 2025, Trump’s policies risk destabilising markets and stoking uncertainty in regards to the outlook for Japan’s export-reliant economy.
Domestic political uncertainty could heighten, too, as Prime Minister Shigeru Ishiba’s minority coalition may struggle to pass budget through parliament and win an upper house election scheduled in July.
The economic damage attributable to past ill-fated rate hikes also haunt BOJ policymakers. The BOJ ended quantitative easing in 2006 and pushed short-term rates to 0.5% in 2007, moves that triggered a storm of political criticism as delaying an end to deflation.