The Bank of Japan (BOJ) has indicated a cautious approach towards raising its benchmark interest rate, with no clear signal on whether such a move will happen in December.
A summary of opinions from its October policy meeting, released on Monday, shows that while some board members discussed the possibility of future rate hikes, there was no consensus on immediate action.
“It cannot be judged at this point that markets are stabilizing,” one member said.
This statement signaled uncertainty in global market conditions. The BOJ had kept interest rates at 0.25% during the October meeting, held shortly before the US presidential election. While some members expressed that the bank should continue to assess developments in the US economy before taking further action, others suggested that a rate hike could be considered after monitoring these trends more closely.
The absence of a clear direction on the timing of a rate hike will keep market participants guessing. Despite this, many economists are expecting a rate move by January, with more than 80% of surveyed analysts predicting an increase by then. A few board members have hinted that a rate hike is still a possibility, although they emphasized the need to wait until the situation around the US economy becomes clearer.
The central bank’s cautious stance is partly influenced by potential risks in the foreign exchange market, as the BOJ and the US Federal Reserve are taking different approaches to interest rates. A BOJ member pointed out that such differences could lead to large fluctuations in the yen’s value, adding uncertainty to the global economic environment.
Concerns about Japan’s economic growth have also contributed to the BOJ’s cautious approach. Data released on Monday showed that Japan’s service-sector sentiment worsened in October, with a key index measuring sentiment among service-sector firms declining for the second consecutive month. Additionally, corporate bankruptcies have risen, partly due to labor shortages and rising material costs. The number of bankruptcies reached 925 in October, up 17.1% from the previous year, highlighting the financial strain on many businesses.
Despite these challenges, some BOJ members believe that the domestic economy could still experience robust demand, driven by rising wages. However, they acknowledged the risk that labor shortages could limit growth and dampen consumption. A member noted that firms may be forced to scale back operations if they are unable to find enough workers, which could further slow the recovery.
The BOJ’s decision to raise its policy rate to 0.25% in July marked the end of a long-standing ultra-loose monetary policy. Governor Kazuo Ueda has suggested that the central bank may continue to raise rates if domestic demand remains strong and inflation is sustainably close to its 2% target.
With input from Bloomberg and US News & World Report.
