The Bank of Japan signaled it remains on track to consider more rate hikes by tightening its ratings on two regional economies, while also giving little indication of a need for immediate action.
The BOJ put forward its economic assessments for the Hokuriku and Tokai regions in its quarterly regional report on Monday. In a separate press release summarizing the views of office managers who met to discuss the report, the bank said many reported the growing perception among business leaders that wages must continue to rise next year.
The BOJ is widely expected to keep its policy settings stable when it sets policy on October 31, and some economists have pushed back their forecasts for a year-end hike after new Prime Minister Shigeru Ishiba noted last week – on his first day in office stock market job – that conditions are not ripe for such action.
Monday’s report reminds us that another increase is on the table further down the line. The report is likely to provide encouraging news for Governor Kazuo Ueda, who has reiterated that the extent to which wage growth spreads is a key issue that will help determine the path of borrowing costs.
Rengo, Japan’s largest umbrella union group, will this month set out its basic position for next year’s wage negotiations. BOJ watchers will be keeping a close eye on this development. This year’s wage talks ultimately became a major factor in pushing the BOJ to end the world’s last negative interest rates in March. A few days before that decision, Rengo reported the first results of the wage negotiations.
Nothing in Monday’s report indicated immediate policy action. After meeting with Ishiba at the prime minister’s office last Wednesday, Ueda said the bank has ample time to assess economic conditions before considering its options.
Politics is another factor encouraging authorities to remain firm this month. Ishiba is expected to dissolve parliament this week, laying the groundwork for national elections on October 27.
Economists will be closely watching how Ueda characterizes the prospects four days later, when he briefs the press after the board’s decision. Today’s report complements recent economic data showing that Japan’s recovery is underway.
“All nine regions reported that their respective economies recovered moderately, or grew moderately, although there was some weakness in part,” the BOJ said in the regional report.
