MNI POLICY: BOJ 2025 Hike Chances Weak On Wages, U.S. Concerns

A Bank of Japan rate hike this year would be difficult unless the yen weakens toward JPY160, with officials stressing the need for deeper scrutiny of wage gains and a clearer read on the U.S. economy, MNI understands.

While a weaker yen – currently at 147.477 to the U.S. dollar – could hasten action by lifting inflation, price gains are slowing in line with BOJ forecasts. Inflation is still supported by firms passing higher labour and distribution costs to consumers, but officials see little risk of a wage-price spiral, also reducing pressure to move quickly.

The Bank's focus remains fixed on corporate price-setting, exports and production, with July’s real export index and industrial output falling due to trade impacts. Bank officials are focused on how demand has been evolving in the U.S. to examine Japanese exports and production for the third quarter to ascertain their underlying trend.

MNI reported last week BOJ officials are also monitoring weakening household inflation expectations as food-price rises ease, further reducing the likelihood of a 2025 hike. (See MNI POLICY: Risk Of Weaker Inflation Expectations Concern BOJ)

U.S. CONCERNS

Officials see no need to rush hikes as upside risks to prices have not increased since July, giving the BOJ scope to monitor the impact of U.S. tariffs on the American and Japanese economies.

Risks to the U.S. economy are rising, with inflation concerns likely to complicate U.S. Federal Reserve rate cuts despite its ample room to ease. Fed cuts would benefit the global economy, providing a tailwind for the BOJ’s own tightening if its growth and inflation outlook materialises.

Officials note that U.S. producer prices are being driven more by services than goods as firms protect profit margins, while immigration and fiscal policies risk sustaining inflationary pressure. They judge that tighter immigration is lowering the U.S. economy’s potential growth rate, limiting its ability to ease inflation.

Under current conditions, Japan’s central bank sees U.S. fiscal expansion adding upward pressure on inflation, hindering the Fed’s ability to cut smoothly. Tariff-related corporate price hikes could vary by industry, but may drag on until Q1 as firms watch rival and consumer reactions.