MNI INTERVIEW: Dec Or Jan Hike More Likely - Ex-BOJ's Kameda

The Bank of Japan is likely to raise its 0.5% policy rate in December or January at the earliest, despite positive Tankan results nudging up the odds of an October move, former BOJ chief economist Seisaku Kameda told MNI, stressing the Board will want greater clarity on wages before hiking.

“The Tankan results were positive but they weren’t sufficiently strong to definitely increase the probability of the rate hike in October,” said Kameda, now executive economist at Sompo Institute Plus. “I cannot say the probability of the rate hike in October significantly increased as a result of the Tankan alone, although the possible rate hike in October isn't zero.”

Markets upped their prediction of an October hike this week following the publication of September’s Tankan and the recent hawkish remarks by a few board members, now pricing in a 60% chance of a move at the Oct 29-30 meeting. (See MNI POLICY: BOJ's Tankan Raises Hike Odds, Ueda Speech Eyed)

Kameda noted the survey suggested U.S. trade policy had not had a considerable negative impact on the Japanese economy so far and, while exporters’ profits were being squeezed, this was within expectations. The focus now is whether weaker exporters’ profits filter through to other sectors and if this will undermine capital investment and wage hikes.

The Tankan also confirmed capex plans remain solid and overall corporate profits had not deteriorated significantly, he said. A key issue, however, is whether the BOJ can be confident the impact of trade policy on underlying CPI is weaker than it feared earlier this year, he continued.

Kameda's view remains largely unchanged from August. (See MNI INTERVIEW: Ex-BOJ's Kameda Sees Hike By December)

WAGES KEY

“The worst is that spring wage negotiations or wage hikes are much weaker than the bank predicted after raising the policy rate,” he said, adding the BOJ would want to avoid this scenario. “Therefore, the most likely scenario is the rate hike either December or January when the bank can get more information about wages, including the strength of corporate wage-hike appetite, toward the end of this year.”

BOJ executives are keen to confirm that fiscal 2026 wages will rise and that service prices will remain firm before moving, he added. 

The upcoming BOJ branch managers’ meeting may provide some insight into firms’ compensation plans, though many companies have yet to decide the scale of pay increases, Kameda continued. Even if the “fog” surrounding trade policy clears completely, the BOJ could still proceed with policy adjustments if risks of a sharp U.S. downturn fail to materialise, he argued. He expects the U.S. economy to slow but not to fall into a deep recession.

BOJ policymakers remain focused on underlying CPI rather than goods prices, while keeping an eye on the risk that sustained cost pressures raise inflation expectations. 

If the Bank concludes the drag from trade policy is weaker than feared, that could directly support a hike, he said. Ueda’s cautious approach reflects a desire to secure the 2% inflation target without prematurely tightening, he added. “That’s his risk management approach rather than overshooting of prices,” Kameda argued.

While U.S. growth is expected to slow, he does not foresee a deep global recession. If the BOJ judges the trade-policy drag on underlying CPI is smaller than feared in April, he said, that could pave the way for a hike.