The Bank of Japan will definitely raise interest rates further. The question is when | Wilnesh News

The Bank of Japan is widely expected to stick with monetary policy tightening as inflationary pressures in the capital Tokyo reaffirm the bank’s economic forecasts. But market participants remain divided over the timing of the next rate hike.

“My money is on another rate hike in October,” Stefan Angrick, senior economist at Moody’s Analytics, told CNBC via email. He expects at least one more rate hike in 2025. One rate hike could be as early as January.

Angelique said Japan is likely to continue to experience “jump” inflation in the short term, noting that the government is working to cut energy subsidies. While Prime Minister Fumio Kishida promised to extend support for household utility bills, he admitted the measures “can’t last forever”.

However, Kazuo Momma, a former BOJ official and now executive economist at Mizuho Research Technologies, expects the central bank to keep interest rates unchanged in October. His base forecast includes a rate hike to 0.5% in January and a further hike to 0.75% in July. Momma said this will bring Japan’s monetary policy to its final position in this tightening cycle.

Friday data shows Overall inflation in Japan’s capital Tokyo Annual growth accelerated to 2.6% in August, up from 2.2% in July. After excluding the volatile cost of fresh food, core inflation rose 2.4% from the same period last year. That was faster than the median forecast and July’s 2.2% pace, marking the fourth consecutive month of acceleration.

However, Mom said the Bank of Japan’s interest rate hike “is not strong enough”. He said the Bank of Japan had “currently no good reason to act hastily” as it monitors risks in global financial markets.

Moody’s Angrik said the upbeat monthly consumer price index data was affected by recent “policy vagaries,” referring to some counterproductive policies at work. He explained that the government provided some subsidies while scaling back other support measures. He believes this shows “an unwillingness to provide effective support”.

Demand-driven price pressures remain low and employment conditions are softening, Angelique said, noting that the upcoming Liberal Democratic Party elections add further uncertainty to the future policy process.

Japan unemployment rate It also rose to 2.7% in July, up 0.2 percentage points from June, according to government data released on Friday. Economists polled by Reuters had expected the unemployment rate to be 2.5% in July.

“At best, further interest rate increases will further drag on economic growth, and at worst, it could trigger a broader recession,” Angelique said.

Tokyo’s consumer price index, a leading indicator of national trends, has been rising as wages rise across the country, the government tries to phase out energy subsidies and the yen weakens.

But Marcel Thieliant, head of Asia Pacific at Capital Economics, wrote in a client note that underlying inflation should fall below 2% in the coming months.

The Bank of Japan surprised markets in July by raising interest rates to a 15-year high of 0.25% and outlining plans to scale back its massive bond-buying program.

Bank of Japan Governor Kazuo Ueda recently told parliament The central bank is prepared to further raise borrowing costs if inflation continues to rise above its 2% target.