–Adds Context to Economy Watchers Survey in Paragraphs 15-17
(MaceNews) – Here are the key Japanese economic events for the coming week, with the market focus on what the governor of the Bank of Japan will say about a widely expected interest rate hike and how much more the bank should lift the overnight rate target so that it would be close to neutral to economic activity.
BOJ policymakers appear all set to go this week. They have been waiting patiently for months for the trade row fog to dissipate, if not clearing up given the erratic patterns of President Trump’s decision-making. There is also no political noise against a rate hike from the government under Sanae Takaichi, who took office in late October.
Leading the nine-member board at the bank is Kazuo Ueda, a former academic who sat on the board for seven years from April 1998, and his two deputies: Shinichi Uchida, a career central banker and a key figure behind the bank’s large-scale monetary easing before Ueda took the helm in April 2023, and Ryozo Himino, a former top regulator on the banking sector.
Ueda is expected to propose a 25-basis point rate hike to 0.75% as the chair of the board, backed by the deputy governors. That would be the highest level in about three decades but real borrowing costs, when the effects of inflation is removed, are still estimated to be negative.
Among other members, Hajime Takata, who came from Mizuho Securities, and Naoki Tamura, formerly with the Sumitomo Mitsui banking group, have already launched a campaign, calling for a hike at each of the most recent meetings on Sept. 18-19 and Oct. 29-30. The other member with financial industry background, Junko Nakagawa, a former Nomura Securities executive, has sounded neutral and has voted for the motions tabled by the governor, whether raising or keeping rates or scaling back asset purchases.
Asahi Noguchi, a former economics professor, has pointed to the risk of being behind the curve in the process of gradually normalizing the super-low policy rate in his recent speeches, noting that economy is getting closer to reaching a stable 2% inflation rate as targeted by the bank.
Also hailing from the academic world, Junko Koeda said in a recent speech that given real interest rates are estimated to be significantly low, the bank “needs to proceed with interest rate normalization” to avoid unintended distortions. She believes “underlying inflation is about 2%.”
Little known is Kazuyuki Masu, who joined the bank only five months ago from Mitsubishi Corp., a major trading firm. He told the Jiji Press news agency last month that “the conditions are set” for a rate hike given the current growth and inflation climate, arguing that the board could see the trend for fiscal 2026 wage-setting moves among major firms before March when the first round of labor-management talks is done.
Considering all of this, a unanimous vote on a rate hike at the Dec. 18-19 meeting is the most likely scenario. Passing this opportunity when the rough global trade waters are relatively calm and the domestic political climate is fairly stable would not sound wise. Not raising rates when the financial markets have fully priced in such a move could also trigger an unwanted further depreciation of the yen, which would add to already high import costs for households and businesses.
The focus of this week’s event is on remarks by Governor Ueda, who has been quite candid about what he thinks about various topics on how monetary policy should be and how to analyze economic data.
Market participants wish to hear any hints for how many more rate hikes the governor has in mind and what is his estimate for the neutral rate, which is neither too stimulative nor too restrictive to economic activity.
Yet BOJ officials do not place so much emphasis on the neutral interest rate. People’s inflation expectations can change from time to time and thus it is a moving target. It is also a theoretical assumption and varies, depending on what calculation method is used.
Assuming that the trend inflation rate in the long run is just under the BOJ’s 2% price stability target given sluggish domestic demand (the current 3% CPI annual rate largely reflects a spike in rice prices and thus is not sustainable), the nominal neutral rate is estimated by economists to be around 1%. That means the BOJ is likely to conduct two 25-basis point (0.25 percentage point) rate hikes including the one highly anticipated this Friday.
Looking months ahead, BOJ policymakers are expected to stay on a cautious path in the face of sluggish consumption and easing but lingering uncertainty over global growth.
The monthly Economy Watchers Survey, which was conducted by the Cabinet Office from Nov. 25 to Nov. 30 and released on Dec. 8, indicated that confidence slipped back and the outlook turned dimmer in November after having improved sharply the previous month.
The Watchers’ sentiment index showing the direction of Japan’s current economic climate fell to 48.7 in November on a seasonally adjusted basis after rising to a 19-month high of 49.1 in October from 47.1 in September. The index has stayed under the key 50 line for nearly two years. It was last above the neutral line in February 2024 (50.9).
The Watchers’ outlook index, which shows sentiment in two to three months, also dipped to 50.3 from a 27-mongh high of 53.1 in October, when it rose from 48.5 the previous month.
On the current conditions, a supermarket manager in the Hokuriku region in central Japan said, “Sales of seasonal items have increased this month as food price hikes have stabilized and temperatures are not as extremely high as last year, leading to higher sales volume.”
In contrast, a restaurant employee in western Japan reported that prices continued to rise and hurting consumer sentiment, adding that “school closures due to influenza outbreaks have reduced foot traffic in shopping districts.”
Also on the downside, an official at a hotel in Tohoku region in the north said, “We’ve received many inquiries about bear sightings, and some reservations have been canceled. Combined with high prices, this is seen as a factor slowing recent bookings.”
Looking ahead, a travel agent in Okinawa in the south said, “Customers are becoming accustomed to higher prices, and while travel costs remain high, demand is expected to increase depending on the customer base.”
But at the same time, a shopping mall manager in Kyushu in the southwest noted that there is no clear impact of Beijing’s call to boycott Japan over Prime Minister Sanae Takaichi’s remarks over supporting Taiwan if it comes under military attack from China, “but future plans must assume a negative impact. We plan to verify the comparison between assumptions and actual conditions in three months.”
A food processor in the western region of Shikoku is concerned about the drag from the weak yen, projecting that “rate fluctuations, raw material prices from overseas are expected to remain high. Companies are unable to pass on these increased costs to product prices, leading to pressure on profits.”
FY2025 large firm capex plans +12.2% y/y (+10.0% to +13.4%) vs. +12.5 in Sept; FY2025 small firm capex plans +0.3% (-1.1% to +2.9%) vs. -2.3%
The Bank of Japan’s quarterly Tankan business sentiment survey is expected to show a slight improvement among major firms in both manufacturing and services sectors in the December quarter, supported by the yen’s continued weakness and solid global demand tied to artificial intelligence. At the same time, the negative effects of the Trump tariffs are expected to continue to surface, keeping the overall outlook cautious.
Business sentiment among large and small non-manufacturers is expected to remain largely unchanged from the September survey.
The Tankan diffusion index for major manufacturers is forecast at 15, up from 14 in September and seen marking the third straight quarterly increase. The index measuring sentiment among major non-manufacturers is also projected to tick up to 35 from 34.
The index for smaller manufacturers is forecast to hold at 1 while that for small non-manufacturers is also expected to be unchanged at 14. The BOJ will release the results of its Tankan survey, conducted from around mid-November to mid-December, at 0850 JST on Monday, Dec. 15 (1850 EST/2350 GMT on Sunday, Dec. 14).
Big companies are expected to project a combined 12.1% rise in business investment in equipment and software for fiscal 2025 ending in March 2026, slightly down from 12.5% in the September survey after a planned 11.5% increase in the June quarter, but sharply higher than their first estimate of +3.1% provided in March.
Capital expenditure plans continue to be supported by demand for automation amid labor shortages, as well as government-backed digital transformation and emissions-related initiatives. However, upward revisions by major firms may be somewhat more modest than in typical years due to lingering uncertainty over the impact of U.S. tariffs.
Smaller firms are expected to continue revising up their combined capital spending plans, following the pattern typically seen toward the end of the fiscal year. Their investment plans are forecast to dip just 0.2% in December after a 2.3% fall in September, having already revised their outlook to -5.6% in June from -10.0% in the first estimate released in March.
– Wednesday, Dec. 17
0850 JST (2350 GMT/1850 EST Tuesday, Dec. 16) The Ministry of Finance releases November trade.
Mace News median: exports +2.6% y/y (range: +0.4% to +5.0%) vs. Oct. +3.6%; imports +0.5% y/y (range: -1.4% to +3.9%) vs. Oct +0.7%; trade surplus ¥47.60 billion (range: a deficit of ¥17.00 billion to a surplus of ¥128.30 billion) vs. a revised ¥226.07 billion deficit in October 2025; ¥499.95 billion deficit in October 2024
Japan’s export values are expected to post a third straight rise on year in November, up a modest 2.6%, thanks to solid demand from the recent recovery in the European Union and a pickup in Asia after many months of doldrums in China that has been mired in property market problems. The pace of increase is seen slowing from +3.6% in October and 4.2% in September. Shipments to the key U.S. market are likely to record an eighth consecutive drop as stiff import duties are hurting carmakers and steel mills.
Exports in November are expected to be led by computer chips, electronic components, drugs and non-ferrous metals, whose effects are seen partly offset by automobiles and ships.
Import values are also expected to rise for the third straight month, up a slight 0.5%, as higher purchases of engines, computers and drugs are largely offset by falling prices of crude oil, coal and liquefied natural gas. It would follow a 0.7% gain in October and a 3.3% rebound in September.
As a results, the trade balance is projected to post its first surplus in five months, estimated at a modest surplus of ¥47.60 billion after a revised ¥226.07 billion deficit in October and a ¥120.81 billion deficit in November 2024.
– Wednesday, Dec. 17
0850 JST (2350 GMT/1850 EST Tuesday, Dec. 16) The Cabinet Office releases October machinery orders.
Mace News median: core orders -2.6% m/m (range: -5.0% to +2.7%) vs. Sept +4.2%; +3.6% y/y (range: +0.6% to +9.1%) vs. Sept +11.6%
Japan’s core machinery orders, a key leading indicator of business investment in equipment and software, are expected to slip back October, down 2.6% on the month, as the impact of a major one-off order from the chemical industry in the previous month fades. However, demand for upgrading and digitizing factories, offices, and retail outlets remains solid amid widespread labor shortages.
In September, core orders rose a solid 4.2%, their first gain in three months, but the three-month moving average of the core measure fell 0.5% for the fourth consecutive decline, highlighting the underlying weakness amid uncertainty over global growth hit by the protectionist U.S. trade policy as well as sluggish domestic demand in the face of sticky inflation.
That prompted the Cabinet Office to maintain its view on the indicator after it downgraded its view in the August report for the first time since its May 2024 report. It now said the pickup in machinery orders are “stalling,” compared to the previews statement that orders were “showing signs of a pickup.”
From a year earlier, core orders excluding those from electric utilities and for ships are projected to rise 3.6%, which would mark a 13th straight month of increase, after jumping 11.6% in September.
Japan’s consumer inflation is expected to remain little changed at around 3.0% on the year in November, staying well above the Bank of Japan’s 2% price stability target in the long run. Processed food price gains have been easing but are still sticky and an end to energy subsidies during the heat wave lifted electricity bills.
The core CPI (excluding fresh food) is forecast to rise 3.0% on the year in November, steady from October and following a 2.9% gain in September. The total CPI is expected to rise 2.9%, also little changed from 3.0% in October and 2.9% in September. Underlying inflation, as measured by the core-core CPI that excludes both fresh food and energy, is seen easing slightly to 3.0%, after ticking up to 3.1% in October from 3.0% in September.
– Friday, Dec. 19
c.1130 JST (0230 GMT the same day/2230 EDT Thursday, Dec. 18) The Bank of Japan releases the outcome of its two-day policy board meeting in monetary policy statement.
1530 JST (0630 GMT/0230 EDT) BOJ Governor Kazuo Ueda holds an hour-long news conference to discuss the board’s decision.
The meeting on Oct. 29-30 ended at 1208 JST (0308 GMT/2308 EDT) and the BOJ released the statement and the quarterly Outlook Report at 1215 JST (0315 GMT/2315 EDT).
At its Dec. 18-19 meeting, the Bank of Japan’s nine-member board is expected to decide either unanimously or in a majority vote to raise the target for the overnight interest rate by 25 basis points (0.25%age point) to 0.75% after standing pat in the previous six meetings, encouraged by reduced uncertainty over how the protectionist U.S. trade policy will hurt global and domestic growth and by early signs that many firms plan to continue raising wages at a solid pace into fiscal 2026.
It would be the bank’s first rate hike since January, when it lifted the policy rate by 25 basis points to 0.5% in an 8 to 1 vote amid increasing signs that major firms would maintain substantial wage hikes into fiscal 2025. It would also be its fourth increase during the current normalization process that began in March 2024 with its first rate hike in 17 years and an end to the seven-year-old yield curve control framework in a 7 to 2 vote. In July 2024, the board voted 7 to 2 to hike the policy rate to 0.25% from a range of 0% to 0.1%.
Less than two weeks to the December meeting, Governor Kazuo Ueda on Dec. 1 dropped a clear hint that the board is ready to make another gradual step toward normalizing the bank’s monetary policy that is still deemed supportive to economic activity. “At the meeting, we will examine and discuss economic activity and prices at home and abroad as well as developments in financial and capital markets…and will consider the pros and cons of raising the policy interest rate and make decisions as appropriate,” he told business leaders in Nagoya, a central Japan manufacturing and commercial hub. He also said “there is a growing view that the impact of tariff policies on corporate profits will be limited. Considering these factors among others, it appears that the uncertainty surrounding the outlook for Japan’s economy is gradually diminishing.”
Ueda stressed the importance of “confirming the initial momentum” toward continued solid wage hikes in fiscal 2026 starting on April 1. Major firms settle annual wage talks with unions from early to mid-March but early indications of the pace of wage growth tend to emerge from November to January.
The governor noted that corporate profits are expected to remain high despite the drag from stiff U.S. tariffs, the Japanese Trade Union Confederation is demanding wage growth at 5% or more (3% in base wages and 2% in seniority-based pay) – the same rate targeted for fiscal 2025 – and the Japan Business Federation is also calling for “further anchoring” of raising wages. BOJ official at the bank’s head office and branches are “actively” gleaning anecdotal evidence on how firms are planning to raise wages, the governor said.
Later at a news conference, Ueda was asked whether the bank’s policymakers would have to wait until the next quarterly meeting of BOJ branch managers in mid-January. The BOJ’s last rate hike, the third in the current cycle of unwinding large-scale easing, was conducted at its Jan. 23-24 meeting following the regional economic reports presented by branch managers at their Jan. 9 meeting.
“We do get reports at the January branch managers’ meeting, or I should say we always get those at regular branch managers’ meetings,” the governor replied. “However, at this particular point, the information or key points we especially wish to confirm are whether the mechanism of wages and prices rising gradually together will continue. The core of this at this stage is the movement toward next spring’s wage negotiations, and we are actively conducting special interviews and surveys regarding this issue.”te October.
Leading the nine-member board at the bank is Kazuo Ueda, a former academic who sat on the board for seven years from April 1998, and his two deputies: Shinichi Uchida, a career central banker and a key figure behind the bank’s large-scale monetary easing before Ueda took the helm in April 2023, and Ryozo Himino, a former top regulator on the banking sector.
Ueda is expected to propose a 25-basis point rate hike to 0.75% as the chair of the board, backed by the deputy governors. That would be the highest level in about three decades but real borrowing costs, when the effects of inflation is removed, are still estimated to be negative.
Among other members, Hajime Takata, who came from Mizuho Securities, and Naoki Tamura, formerly with the Sumitomo Mitsui banking group, have already launched a campaign, calling for a hike at each of the most recent meetings on Sept. 18-19 and Oct. 29-30. The other member with financial industry background, Junko Nakagawa, a former Nomura Securities executive, has sounded neutral and has voted for the motions tabled by the governor, whether raising or keeping rates or scaling back asset purchases.
Asahi Noguchi, a former economics professor, have pointed to the risk of being behind the curve in the process of gradually normalizing the super-low policy rate in his recent speeches, noting that economy is getting closer to reaching a stable 2% inflation rate as targeted by the bank.
Also hailing from the academic world, Junko Koeda said in a recent speech that given real interest rates are estimated to be significantly low, the bank “needs to proceed with interest rate normalization” to avoid unintended distortions. She believes “underlying inflation is about 2%.”
Little known is Kazuyuki Masu, who joined the bank only five months from Mitsubishi Corp, a major trading firm. He told the Jiji Press news agency last month that “the conditions are set” for a rate hike given the current growth and inflation climate, arguing that the board could see the trend for fiscal 2026 wage-setting moves among major firms before March when the first round of labor-management talks is done.
Considering all of this, a unanimous vote on a rate hike at the Dec. 18-19 meeting is the most likely scenario. Passing this opportunity when the rough global trade waters are relatively calm and the domestic political climate is fairly stable would not sound wise. Not raising rates when the financial markets have fully price in such a move could also trigger an unwanted further depreciation of the yen, which would add to already high import costs for households and businesses.
The focus of this week’s event is on remarks by Governor Ueda, who has been quite candid about what he thinks about various topics on how monetary policy should be and how to analyze economic data.
Market participants wish to hear any hints for how many more rate hikes the governor has in mind and what is his estimate for the neutral rate, which is neither too stimulative or too restrictive to economic activity.
Yet BOJ officials do not place so much emphasis on the neutral interest rate. People’s inflation expectations can change from time to time and thus it is a moving target. It is also a theoretical assumption and varies, depending on what calculation method is used.
Assuming that the trend inflation rate in the long run is just under the BOJ’s 2% price stability target given sluggish domestic demand (the current 3% CPI annual rate largely reflects a spike in rice prices and thus is not sustainable), the nominal neutral rate is estimated by economists to be around 1%. That means the BOJ is likely to conduct two 25-basis point (0.25 percentage point) rate hikes including the one highly anticipated this Friday.
Looking months ahead, BOJ policymakers are expected to stay on a cautious path in the face of sluggish consumption and easing but lingering uncertainty over global growth.
The monthly Economy Watchers Survey, which was conducted by the Cabinet Office from Nov. 25 to Nov. 30 and released on Dec. 8, indicated that confidence has slipped back and the outlook turned dimmer.
The Watchers’ sentiment index showing the direction of Japan’s current economic climate fell to 48.0 in November on a seasonally adjusted basis after rising to 48.5 in October from 46.6 in September. The index remains under the key 50 line.
The Watchers’ outlook index, which shows sentiment in two to three months, also dipped to 48.8 from 52.1 in October, when it rose from 48.2 the previous month.
On the current conditions, a supermarket manager in the Hokuriku region in central Japan said, “Sales of seasonal items have increased this month as food price hikes have stabilized and temperatures are not as extremely high as last year, leading to higher sales volume.”
In contrast, a restaurant employee in western Japan reported that prices continued to rise and hurting consumer sentiment, adding that “school closures due to influenza outbreaks have reduced foot traffic in shopping districts.
Also on the downside, an official at a hotel in Tohoku region in the north said, “We’ve received many inquiries about bear sightings, and some reservations have been canceled. Combined with high prices, this is seen as a factor slowing recent bookings.”
Looking ahead, a travel agent in Okinawa in the south said, “Customers are becoming accustomed to higher prices, and while travel costs remain high, demand is expected to increase depending on the customer base.”
But at the same time, a shopping mall manager in Kyushu in the southwest noted that there is no clear impact of Beijing’s call to boycott Japan over Prime Minister Sanae Takaichi’s remarks over supporting Taiwan if it comes under military attach from China, “but future plans must assume a negative impact. We plan to verify the comparison between assumptions and actual conditions in three months.”
A food processor in the western region of Shikoku is concerned about the drag form the weak yen, projecting that “rate fluctuations, raw material prices from overseas are expected to remain high. Companies are unable to pass on these increased costs to product prices, leading to pressure on profits.”
FY2025 large firm capex plans +12.2% y/y (+10.0% to +13.4%) vs. +12.5 in Sept; FY2025 small firm capex plans +0.3% (-1.1% to +2.9%) vs. -2.3%
The Bank of Japan’s quarterly Tankan business sentiment survey is expected to show a slight improvement among major firms in both manufacturing and services sectors in the December quarter, supported by the yen’s continued weakness and solid global demand tied to artificial intelligence. At the same time, the negative effects of the Trump tariffs are expected to continue to surface, keeping the overall outlook cautious.
Business sentiment among large and small non-manufacturers is expected to remain largely unchanged from the September survey.
The Tankan diffusion index for major manufacturers is forecast at 15, up from 14 in September and seen marking the third straight quarterly increase. The index measuring sentiment among major non-manufacturers is also projected to tick up to 35 from 34.
The index for smaller manufacturers is forecast to hold at 1 while that for small non-manufacturers is also expected to be unchanged at 14. The BOJ will release the results of its Tankan survey, conducted from around mid-November to mid-December, at 0850 JST on Monday, Dec. 15 (1850 EST/2350 GMT on Sunday, Dec. 14).
Big companies are expected to project a combined 12.1% rise in business investment in equipment and software for fiscal 2025 ending in March 2026, slightly down from 12.5% in the September survey after a planned 11.5% increase in the June quarter, but sharply higher than their first estimate of +3.1% provided in March.
Capital expenditure plans continue to be supported by demand for automation amid labor shortages, as well as government-backed digital transformation and emissions-related initiatives. However, upward revisions by major firms may be somewhat more modest than in typical years due to lingering uncertainty over the impact of U.S. tariffs.
Smaller firms are expected to continue revising up their combined capital spending plans, following the pattern typically seen toward the end of the fiscal year. Their investment plans are forecast to dip just 0.2% in December after a 2.3% fall in September, having already revised their outlook to -5.6% in June from -10.0% in the first estimate released in March.
– Wednesday, Dec. 17
0850 JST (2350 GMT/1850 EST Tuesday, Dec. 16) The Ministry of Finance releases November trade.
Mace News median: exports +2.6% y/y (range: +0.4% to +5.0%) vs. Oct. +3.6%; imports +0.5% y/y (range: -1.4% to +3.9%) vs. Oct +0.7%; trade surplus ¥47.60 billion (range: a deficit of ¥17.00 billion to a surplus of ¥128.30 billion) vs. a revised ¥226.07 billion deficit in October 2025; ¥499.95 billion deficit in October 2024
Japan’s export values are expected to post a third straight rise on year in November, up a modest 2.6%, thanks to solid demand from the recent recovery in the European Union and a pickup in Asia after many months of doldrums in China that has been mired in property market problems. The pace of increase is seen slowing from +3.6% in October and 4.2% in September. Shipments to the key U.S. market are likely to record an eighth consecutive drop as stiff import duties are hurting carmakers and steel mills.
Exports in November are expected to be led by computer chips, electronic components, drugs and non-ferrous metals, whose effects are seen partly offset by automobiles and ships.
Import values are also expected to rise for the third straight month, up a slight 0.5%, as higher purchases of engines, computers and drugs are largely offset by falling prices of crude oil, coal and liquefied natural gas. It would follow a 0.7% gain in October and a 3.3% rebound in September.
As a results, the trade balance is projected to post its first surplus in five months, estimated at a modest surplus of ¥47.60 billion after a revised ¥226.07 billion deficit in October and a ¥120.81 billion deficit in November 2024.
– Wednesday, Dec. 17
0850 JST (2350 GMT/1850 EST Tuesday, Dec. 16) The Cabinet Office releases October machinery orders.
Mace News median: core orders -2.6% m/m (range: -5.0% to +2.7%) vs. Sept +4.2%; +3.6% y/y (range: +0.6% to +9.1%) vs. Sept +11.6%
Japan’s core machinery orders, a key leading indicator of business investment in equipment and software, are expected to slip back October, down 2.6% on the month, as the impact of a major one-off order from the chemical industry in the previous month fades. However, demand for upgrading and digitizing factories, offices, and retail outlets remains solid amid widespread labor shortages.
In September, core orders rose a solid 4.2%, their first gain in three months, but the three-month moving average of the core measure fell 0.5% for the fourth consecutive decline, highlighting the underlying weakness amid uncertainty over global growth hit by the protectionist U.S. trade policy as well as sluggish domestic demand in the face of sticky inflation.
That prompted the Cabinet Office to maintain its view on the indicator after it downgraded its view in the August report for the first time since its May 2024 report. It now said the pickup in machinery orders are “stalling,” compared to the previews statement that orders were “showing signs of a pickup.”
From a year earlier, core orders excluding those from electric utilities and for ships are projected to rise 3.6%, which would mark a 13th straight month of increase, after jumping 11.6% in September.
Japan’s consumer inflation is expected to remain little changed at around 3.0% on the year in November, staying well above the Bank of Japan’s 2% price stability target in the long run. Processed food price gains have been easing but are still sticky and an end to energy subsidies during the heat wave lifted electricity bills.
The core CPI (excluding fresh food) is forecast to rise 3.0% on the year in November, steady from October and following a 2.9% gain in September. The total CPI is expected to rise 2.9%, also little changed from 3.0% in October and 2.9% in September. Underlying inflation, as measured by the core-core CPI that excludes both fresh food and energy, is seen easing slightly to 3.0%, after ticking up to 3.1% in October from 3.0% in September.
– Friday, Dec. 19
c.1130 JST (0230 GMT the same day/2230 EDT Thursday, Dec. 18) The Bank of Japan releases the outcome of its two-day policy board meeting in monetary policy statement.
1530 JST (0630 GMT/0230 EDT) BOJ Governor Kazuo Ueda holds an hour-long news conference to discuss the board’s decision.
The meeting on Oct. 29-30 ended at 1208 JST (0308 GMT/2308 EDT) and the BOJ released the statement and the quarterly Outlook Report at 1215 JST (0315 GMT/2315 EDT).
At its Dec. 18-19 meeting, the Bank of Japan’s nine-member board is expected to decide either unanimously or in a majority vote to raise the target for the overnight interest rate by 25 basis points (0.25%age point) to 0.75% after standing pat in the previous six meetings, encouraged by reduced uncertainty over how the protectionist U.S. trade policy will hurt global and domestic growth and by early signs that many firms plan to continue raising wages at a solid pace into fiscal 2026.
It would be the bank’s first rate hike since January, when it lifted the policy rate by 25 basis points to 0.5% in an 8 to 1 vote amid increasing signs that major firms would maintain substantial wage hikes into fiscal 2025. It would also be its fourth increase during the current normalization process that began in March 2024 with its first rate hike in 17 years and an end to the seven-year-old yield curve control framework in a 7 to 2 vote. In July 2024, the board voted 7 to 2 to hike the policy rate to 0.25% from a range of 0% to 0.1%.
Less than two weeks to the December meeting, Governor Kazuo Ueda on Dec. 1 dropped a clear hint that the board is ready to make another gradual step toward normalizing the bank’s monetary policy that is still deemed supportive to economic activity. “At the meeting, we will examine and discuss economic activity and prices at home and abroad as well as developments in financial and capital markets…and will consider the pros and cons of raising the policy interest rate and make decisions as appropriate,” he told business leaders in Nagoya, a central Japan manufacturing and commercial hub. He also said “there is a growing view that the impact of tariff policies on corporate profits will be limited. Considering these factors among others, it appears that the uncertainty surrounding the outlook for Japan’s economy is gradually diminishing.”
Ueda stressed the importance of “confirming the initial momentum” toward continued solid wage hikes in fiscal 2026 starting on April 1. Major firms settle annual wage talks with unions from early to mid-March but early indications of the pace of wage growth tend to emerge from November to January.
The governor noted that corporate profits are expected to remain high despite the drag from stiff U.S. tariffs, the Japanese Trade Union Confederation is demanding wage growth at 5% or more (3% in base wages and 2% in seniority-based pay) – the same rate targeted for fiscal 2025 – and the Japan Business Federation is also calling for “further anchoring” of raising wages. BOJ official at the bank’s head office and branches are “actively” gleaning anecdotal evidence on how firms are planning to raise wages, the governor said.
Later at a news conference, Ueda was asked whether the bank’s policymakers would have to wait until the next quarterly meeting of BOJ branch managers in mid-January. The BOJ’s last rate hike, the third in the current cycle of unwinding large-scale easing, was conducted at its Jan. 23-24 meeting following the regional economic reports presented by branch managers at their Jan. 9 meeting.
“We do get reports at the January branch managers’ meeting, or I should say we always get those at regular branch managers’ meetings,” the governor replied. “However, at this particular point, the information or key points we especially wish to confirm are whether the mechanism of wages and prices rising gradually together will continue. The core of this at this stage is the movement toward next spring’s wage negotiations, and we are actively conducting special interviews and surveys regarding this issue.”