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The Bank of Japan is expected to maintain its target for its benchmark interest rate at 0.25 percent at a two-day policy meeting next week, as the latest inflation data suggest the central bank may not need to rush to raise rates again.

Most economists anticipate the nine-member BOJ Policy Board will decide to maintain the current policy of guiding the unsecured overnight call money rate at around 0.25 percent when they wrap up their gathering on Sept. 8.

The consumer price index, excluding perishables, rose 0.2 percent in July from a year earlier for the second straight monthly increase, but the result was surprisingly lower than the average market projection of a 0.5 percent rise.

Although the BOJ says it will steer monetary policy with “a forward-looking approach” based on economic and price projections, some economists believe the smaller-than-expected rise in the CPI will discourage the central bank from another interest rate hike by the end of the year.

The BOJ scrapped its “zero-interest-rate” policy on July 14, raising the overnight call rate a quarter point from zero for the first increase in six years.

“The BOJ is likely to become cautious about the timing of further interest rate rises, as the July CPI, excluding food and energy costs, fell into the negative column on a year-on-year basis,” said Takehiro Sato, an economist and executive director at Morgan Stanley Japan Ltd.

Sato expects the BOJ will adjust the key short-term rate at a moderate pace, raising it to 0.5 percent in the January-March period of 2007 and to 0.75 percent in the July-September period.

However, he added, some BOJ officials were not shocked by the July CPI data and they remain bullish about stable price growth.

Hirokata Kusaba, an economist at Mizuho Research Institute, also said the BOJ sees no need to hurry in raising rates.

“We had estimated the second rate hike to come in December or January following the release of the nation’s gross domestic product data for the July-September period and the BOJ’s ‘tankan’ business sentiment survey,” Kusaba said.

“Now I think it is doubtful if the central bank will be able to raise the short-term rate by the end of the current fiscal year,” he said.

Market players are focusing on what BOJ Gov. Toshihiko Fukui will say about possible repercussions from the CPI data on the nation’s monetary policy when he holds a news conference after the upcoming BOJ gathering.

Other analysts warn the market not to assume that the BOJ will not raise the key rate until next year.

Seiji Adachi, a senior economist at Deutsche Securities Ltd., noted that the BOJ focuses on the real economic situation, such as the supply-demand gap, rather than the CPI alone.

“I still predict the BOJ will conduct the second interest rate hike either at the Oct. 12-13 policy meeting or a one-day meeting on Oct. 31,” Adachi said.

The central bank is likely to pay close attention to its upcoming tankan poll due out Oct. 3, regarding whether companies’ capital investment plans will be revised upward from the July survey, according to Adachi.

In March, the BOJ scrapped its quantitative easing policy. Fukui said last month the BOJ will “slowly” adjust interest rate levels as economic and price conditions change, leading market watchers to believe there will be no hike this calendar year.

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