Foreign media surveys of economists show that they expect the Bank of Japan to raise interest rates again this year, possibly faster than expected, with the weak yen being one of the factors that may play a role.

After the Bank of Japan made a landmark decision this week to abandon its massive easing program, a Bloomberg survey showed that despite the dovish signal from the Bank of Japan after announcing its first interest rate hike in 17 years on Tuesday, economists are still aware that the Bank of Japan will There is a risk that Kazuo Nagaueda and his committee members may take action again in the coming months.

62% of the 47 respondents to the survey expect the Bank of Japan to raise interest rates again before October, but they disagree on the specific timing of the next move.

Most BOJ watchers expect the next rate hike to be in October

About 23% of respondents said the Bank of Japan would raise interest rates in July, while 26% said the central bank would raise interest rates in October. Another 11% of respondents said the next interest rate hike will come in September. According to the average forecast of economists surveyed, Japan's short-term interest rate - the target cap for the unsecured overnight lending rate - will rise to 0.25% by the end of this year from the current 0.1%.

About 70% of respondents also said there was a risk to their baseline forecast that the BOJ could take action before July, with 17% citing June specifically. About 55% of economists warned that there was a greater risk that the central bank would raise interest rates faster than expected. In contrast, about one-fifth thought Ueda might end up raising interest rates more slowly.

A Reuters survey conducted after the Bank of Japan announced its interest rate decision from March 19 to 21 also showed that more than half (54%) of economists expected the Bank of Japan to further raise interest rates this year, possibly to 0.25%. .

While none of the 35 economists surveyed predicted that the next rate hike will occur in June, 5 of the 37 economists (14%) who provided quarterly forecasts predicted that The Bank of Japan will raise borrowing costs to 0.20% or 0.25% in the third quarter.

Fifteen of 35 respondents (43%) expect the Bank of Japan to take the next step in the fourth quarter, with their forecast range for Japan's short-term interest rates ranging from 0.15% to 0.25%. Economists' median forecast shows the rate will be 0.20% by the end of 2024.

In addition, five economists predict that the next interest rate hike will be next year rather than this year. Two economists predict that interest rates will be raised in the first quarter of next year, another thinks it will be the second quarter, and another predicts the third quarter. Three-quarters of economists polled by Reuters said there was a greater risk that the Bank of Japan would raise interest rates faster than expected.

Why is the Bank of Japan expected to raise interest rates faster?

After the Bank of Japan announced its interest rate decision this week, the yen fell more than 1% against the US dollar as investors believed that Kazuo Ueda may continue to maintain loose financial conditions and that further interest rate increases were not mentioned in the Bank of Japan's policy guidance.

However, Naka Matsuzawa, chief strategist at Nomura Securities, said: "The Bank of Japan described this shift as a dovish rate hike, but they also revealed a hawkish undertone. The key is that the Bank of Japan no longer needs to wait for the release of the quarterly outlook before taking action Action. Kazuo Ueda noted that the increased risk of a change in the inflation outlook could be sufficient reason to change policy."

Kazuo Ueda said on Thursday that the Bank of Japan took action this week in part because it wanted to avoid having to raise interest rates quickly if it acted too late. The comments suggested a change of heart ahead of this week's meeting. He has previously insisted that the risk of Japan's monetary policy falling behind the (yield) curve remains low compared with the United States and Europe.

Mari Iwashita, chief market economist at Daiwa Securities, pointed out that considering that inflation may accelerate after July, she tends to believe that the next interest rate hike will occur in September or October. "The government may declare an official end to deflation before the leadership election of the ruling Liberal Democratic Party in September," Iwashita said.

Some economists believe that the Bank of Japan is unlikely to raise interest rates ahead of schedule due to a weak economy.

Stefan Angrick, senior economist for Japan at Moody's Analytics, said: "The Japanese economy is not in recession, but it is not far away. All of this means that the Bank of Japan will proceed at a gradual pace. Rate hike.”

Bank of Japan Governor Kazuo Ueda has repeatedly emphasized that the policy will be maintained loose and pointed out that inflation is still some way away from reaching the 2% target. He also said the Bank of Japan would eventually scale back its bond purchases and let market forces determine changes in long-term interest rates, demonstrating his determination to steadily normalize ultra-loose monetary policy.

Finding the right balance between raising interest rates and managing a bloated balance sheet is one of Ueda's biggest challenges going forward. That task could become more complicated if the yen weakens again. A weaker yen will also increase inflationary pressures in Japan, an economy that relies on energy and food imports.

In a Bloomberg survey, about 54% of respondents said the Bank of Japan was likely to raise interest rates if the yen depreciated faster, but nearly a third said they did not expect that to happen. .

Speaking in parliament on Friday, Kazuo Ueda said the large-scale easing program launched by his predecessor Haruhiko Kuroda would help correct the yen's excessive strength. He had said at a press conference after Tuesday's policy decision that the central bank would consider policy responses if exchange rate fluctuations began to have a significant impact on the economic and price outlook.

On Friday, the yen hit 151.86 against the U.S. dollar, close to the 151.95 level hit in October 2022 when the Japanese Ministry of Finance intervened to support the yen. After the report was released, the yen briefly rose to 151.42.

About 40% of respondents in a Bloomberg survey said the risk of Treasury intervention in the currency market increased as the yen fell after the Bank of Japan implemented normalization measures. The median number prompting Treasury intervention was 155, the survey showed.

Article forwarded from: Golden Ten Data

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