Bank of Japan Governor Kazuo Ueda delivered a governor’s speech on Japan’s inflation and monetary policy at the 2024 Autumn Meeting of the International Monetary Fund (IMF) and the World Bank Group in Washington, the United States, on October 23, 2024. Answers question.
Kelly Greenlee Beale | Reuters
Japan’s long-ruling Liberal Democratic Party may have suffered an election shock, but analysts said it was unlikely to halt the Bank of Japan’s interest rate hike cycle.
In Sunday’s election, the Liberal Democratic Party lost its majority in Japan’s House of Representatives for the first time since 2009. Minority governments are also possible.
David Boling, Eurasia Group’s Japan and Asia trade director, told CNBC’s “Squawk Box Asia” that the result was a blow to the Liberal Democrats.
“The LDP is injured. Their eyes are swollen. Their noses are bleeding, but they are still standing, as is Ishiba, and they are still the largest party in the House of Representatives,” he said on Monday.
Therefore, the Liberal Democrats will remain “in the driver’s seat” when it comes to forming a coalition government, which he said is good news.
The political turmoil comes ahead of a Bank of Japan meeting this week. About 86% of economists polled by Reuters expected the central bank to keep interest rates on hold when it announces its decision on Thursday.
Izumi Devalier, chief Japan economist at Bank of America, said the chance of the Bank of Japan raising interest rates this week “is probably close to zero.”
Asked whether the election results would derail the Bank of Japan’s interest rate hike cycle, de Vallier explained that while political uncertainty and instability could delay rate hikes, she added that the Bank of Japan cannot ignore the yen’s Continued weakness.
“I don’t think that necessarily means the Bank of Japan is going to be on hold for the foreseeable future. Obviously, you have to watch the market developments, but we could still raise rates in January or even December, depending on where the yen goes,” she said.
Citi Japan economist Katsuhiko Aiba had a similar view, writing in a note that “some believe government instability will make it difficult for the Bank of Japan to raise interest rates, but this is by no means obvious.”
He added: “Even after the lower house election, we still think the chances of the government changing the Bank of Japan’s rate hike cycle are slim. However, we see risks if Prime Minister Ishiba steps down and Takaichi Sanae becomes the new LDP.” leader.
Takaichi, who recently lost the Liberal Democratic Party election to current Prime Minister Shigeru Ishiba, previously served as Economic and Security Minister. She favors monetary easing and has Report warns Bank of Japan Opposed to raising interest rates in September.
Jesper Koll, expert director at Tokyo-based financial services firm Monex Group, told CNBC that the Bank of Japan will be more independent after the election and continue its goal of normalizing monetary policy.
“Yes, desperate politicians will be bolder in calling on the Bank of Japan to take action, but unlike Ishiba, Bank of Japan Governor Ueda knows what he is doing and has the full support of the people,” he said.
market impact
Monday morning, benchmark Nikkei 225 Index rose about 1.73%, leading Asian markets, while JPY It fell to a three-month low, trading at 153.49. A weaker yen typically boosts Japanese stocks, which are heavily weighted toward exporters.
Bank of America’s de Vallier said the market move may be a “knee-jerk” reaction and that investors will have to pay attention to market trends in the week ahead.
Monex Group’s Cole remains bullish on Japan over the long term, saying “unlike LDP leaders, Japanese CEOs are getting things done and focusing on creating shareholder value and profitable investments.”
He predicted that corporate profits and profits will experience unexpected growth in the next 12 to 15 months, growing by 18% to 20% and boosting the Nikkei.
Back in July, Cole reiterated his prediction that the Nikkei would reach 55,000 points by the end of 2025, driven by improving corporate profits.
Likewise, SMBC chief FX strategist Hirofumi Suzuki said the formation of a coalition government, as seen in Monday trading, is expected to boost stock prices, while the yen weakened.
But he added that further yen weakness could be a catalyst for a rate hike, noting that SMBC was monitoring the exchange rate.
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