MNI POLICY: Dec Or Jan BOJ Hike Hinges On Sept Tankan

The Bank of Japan could raise its 0.5% policy rate as early as December if business investment plans and sentiment remain solid in the September Tankan survey, though weaker results may prompt the Bank to wait until January, MNI understands.

June’s Tankan showed limited impact from U.S. trade policy on business sentiment and capital expenditure, with many companies yet to factor in potential negative effects on profits and investment plans.

However, BOJ economists expect trade-related uncertainty to weigh more visibly on business and household spending in the September Tankan, which could prompt the Bank to delay further tightening until it reviews the December survey – making a January move more likely.  

In December 2024, the BOJ had gathered enough information to justify a rate hike but held off to further confirm wage trends, ultimately raising the policy rate in January. (See MNI BOJ WATCH: Ueda Flags More Hikes, No Clear Timeline) But officials later admitted there was no significant new information between the December and January meetings.

This year, however, the challenge of assessing wage-hike potential is greater due to elevated uncertainty. While the risk adverse BOJ would prefer to avoid a rushed December hike, persistent inflation could prompt action if price gains fail to moderate as expected.

Markets have only priced in a 22% chance of a hike at the Dec 19 board meeting. 

WAGE GROWTH 

Officials are watching closely whether the foundation for wage growth at major manufacturers can be sustained amid a slowing global economy. Wage trends at these firms typically influence broader wage-setting behaviour.

Executives at leading companies are expected to indicate their wage intentions for fiscal 2026 in late December, after assessing profitability and the business environment.

Japanese carmakers have begun raising U.S. vehicle prices and preparing to expand production in the U.S., despite initially holding prices steady following new tariffs. The June Tankan showed that auto sales volumes did not fall, as firms absorbed the tariff costs using profits bolstered by the previously weak yen.

However, the stronger yen compared to last year and declining sales volumes have started to erode profits in the auto sector, undermining the foundation for broad-based wage increases and dampening hopes for steady, sustainable income growth. 

BOJ officials will closely monitor export and industrial production trends in the third quarter, along with corporate profits, to assess the underlying strength of wage-growth momentum.