The Bank of Japan (BOJ) is likely to keep its benchmark interest rate unchanged this week as it awaits greater clarity on domestic wages and spending trends, as well as policy changes by the incoming administration of US President-elect Donald Trump. According to a survey of 24 economists by CNBC, 54% of respondents said the BOJ is likely to keep its benchmark interest rate unchanged at 0.25% at the end of its two-day meeting on Thursday.
The BOJ, which last raised rates in July, has signaled its readiness to tighten further if wage growth and prices align with its projections. However, with Japanese interest rates the lowest among developed countries, the bank is also wary of raising rates too quickly following more than two decades of deflation.
The survey noted that many economists believe the Japanese economy is broadly on track to achieve the central bank’s 2% inflation target, driven by wage growth. However, they noted the BOJ might prefer to wait another month to evaluate wage-driven inflation dynamics, focusing on momentum from next year’s spring wage negotiations and Trump’s trade and tariff policies.
Several economists highlighted shifting market expectations after recent media reports suggesting policymakers wanted more time to monitor overseas risks and gather additional clues on Japan’s wage outlook. “The BOJ’s confusing communications” now suggests a likely outcome of the central bank leaving rates unchanged to await additional information from the spring wage negotiations and US policy developments, said Shigeto Nagai, head of Japan Economics at Oxford Economics.
Regular wages in Japan have been growing annually at a rate of 2.5% to 3%, with inflation staying above the BOJ’s 2% target for 30 consecutive months. Despite some concerns, most economists expect the BOJ to keep rates unchanged this week, with only 35% of respondents predicting a rate hike in January.
