–Ueda: Bank May Get Enough Data in March or April to Decide on Next Rate Hike
By Max Sato
(MaceNews) – Bank of Japan Governor Kazuo Ueda said Friday that the bank’s policymakers may receive clearer data and information in March or April that would allow them to decide confidently whether to go ahead with their third interest rate hike in the current cycle.
On the data necessary for the next rate hike, Ueda told a post-meeting news conference, “It is difficult to specify exactly which data we are referring to, but the overall trajectory has remained on track over the past few months. Based on this, the likelihood of our projections being realized has increased to some extent.”
“However, before making a decision on the next rate hike, we would like to see one more step forward. This includes sustained wage growth, and specifically, we want to observe the momentum of next year’s spring labor negotiations.”
The governor said the bank’s policy board needs “a little more information” on the momentum in annual wage talks between unions and management at large firms in the early parts of 2025 that will set the tone for overall base pay hikes in the new fiscal year that starts on April 1.
“We expect to have a clearer picture of the spring labor negotiations around March or April. When it comes to making policy decisions, we will inevitably need to consider this in conjunction with other information.”’
Just under a year in office, Ueda took the initiative in March 2024 to depart from the bank’s previous policy stance of trying to turn around the deep-rooted deflationary mindset with massive injections of cash into the banking system. Instead of waiting until the final counts of wage hike agreements were released by the unions in April, Ueda went ahead, using anecdotal evidence gleaned by the bank’s branches across the country and reported large wage hike offers by major corporations.
The board decided in a 7 to 2 vote to deliver the BOJ’s first rate hike in 17 years, lifting the minus 0.1% overnight interest rate target to a range of zero to 0.1%, and ending the controversial seven-year-old yield curve control framework. Four months later, the board followed up with another rate hike, voting 7 to 2 vote to raise the short-term rate target to 0.25%, citing gradually rising inflation expectations among households and businesses and high but slightly easing uncertainties for the economy.
At the BOJ’s next policy meeting on Jan. 23-24, board members will update their GDP and CPI projections for the fiscal years 2024, 2025 and 2026 ending in March 2027 as well as their analysis of upside and downside risks in their quarterly Outlook Report.
Around that time more information on how the annual labor negotiations are going is likely to emerge and the world may get to hear more from Donald Trump on his plan to impose high tariffs on imports from Canada, Mexico and China as he is scheduled to be sworn in as U.S. president on Jan. 20.
“The focus will likely be on piecing these elements together to form a vision for the future,” Ueda said. “Whether this will be sufficient to improve the accuracy of forecasts by one notch is unclear at this point. Ultimately, we will need to conduct thorough analysis and make judgments at each meeting.”
In his opening remarks at the news conference, the governor said he and his colleagues agreed that while the bank’s policy stance depends on incoming data, “given that real interest rates are at significantly low levels, if the aforementioned outlook for economic activity and prices will be realized, the bank will accordingly continue to raise the policy interest rate and adjust the degree of monetary accommodation.” The bank’s outlook has not changed since the Oct.30-31 meeting: Gradual economic recovery will continue and inflation will be anchored around its 2% price stability target.
“As for the timing of adjusting the degree of monetary accommodation (i.e. unwinding excess stimulus), we need to make a judgement by carefully monitoring various data and information,” Ueda said, adding that the uncertainty over the incoming U.S. administration’s economic policy “remains high.”
At its latest meeting on Dec. 18-19, the BOJ’s nine-member board decided in an 8 to 1 vote to maintain the target for the overnight interest rate at 0.25%. Going into the meeting, forecasters were almost equally divided over the possibility of a rate hike by 25 basis points between this week and at the bank’s next meeting on Jan. 23-24.
Board member Naoki Tamura, a former SMBC financial group executive, called for a rate hike to 0.50% but his proposal was voted down by the rest of the board. He argued that risks to inflation were more skewed to the upside, noting that the economy had been evolving along the bank’s outlook.