By Leika Kihara
TOKYO- The Bank of Japan is expected to raise interest rates on Friday barring any market shocks when US President-elect Donald Trump takes office, a move that would lift short-term borrowing costs to levels unseen since the 2008 global financial crisis.
A tightening in policy would underscore the central bank’s resolve to steadily push up interest rates, now at 0.25 percent, to near 1 percent – a level analysts see as neither cooling nor overheating Japan’s economy.
At the two-day meeting ending on Friday, the BOJ is likely to raise its short-term policy rate to 0.5 percent unless Trump’s inaugural speech and executive orders upend financial markets, sources have told Reuters.
In a quarterly outlook report, the board is also expected to raise its price forecasts on growing prospects that broadening wage gains will keep Japan on track to sustainably hit the bank’s 2 percent inflation target.
A hike by the BOJ would be the first since July last year when the move, coupled with weak US jobs data, shocked traders and triggered a rout in global markets in early August.
Keen to avoid a recurrence, the BOJ has carefully prepared markets with clear signals by Governor Kazuo Ueda and his deputy last week that a rate hike was on the cards. The remarks caused the yen to rebound as markets priced in a roughly 80 percent chance of a rate increase on Friday.
There were also hints of near-term action last month. While the BOJ held off raising rates at the Dec. 18-19 meeting, hawkish board member Naoki Tamura proposed pushing up rates. Some of his colleagues also saw conditions fall into place for an imminent rate hike, minutes of the meeting showed.
With a policy tightening this week seen as a near certainty, market attention is shifting to Ueda’s post-meeting briefing for clues on the timing and pace of subsequent increases. —Reuters
