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Former BOJ executive director Kazuo Momma suggests a 20-30% chance of a consecutive rate hike in October, citing accelerating inflation and a shifted policy focus on preventing overshoots.
-- The Bank of Japan could raise its benchmark rate for a second straight month when the board meets in October, earlier than many economists expect, according to a former executive director in charge of monetary policy.
Florida's Private Railroad Brightline Files for Bankruptcy "The basic pace will probably be once every three months, but there's also a reasonable chance that the BOJ could raise rates at consecutive meetings," Kazuo Momma, the former executive director, said in an interview with Bloomberg Friday.
"I'd put that possibility at around 20% to 30%. " Momma spoke one week after Governor Kazuo Ueda's board lifted the policy rate three months after an increase in June, marking an acceleration from the previous pace of hiking roughly once every six months. Ueda explained that the BOJ had entered a new phase, shifting its focus from coaxing underlying inflation higher toward 2% to preventing it from overshooting that target.
Momma said the language was intended to signal to markets that faster rate hikes could be in store now that the policy focus has shifted.
"The BOJ has been stressing quite strongly that there is a risk that underlying inflation could rise above 2%," Momma said. "Given that, I don't think that risk will diminish over the next three months. If anything, it's more likely to increase.
" The central bank released price trend data Friday that supported that assertion. The BOJ's inflation gauge that excludes fresh food and temporary factors accelerated to a 2.6% gain in August from 2.3% in July.
In addition to upside price risks, Momma said, the BOJ has also emphasized that at 1.25% the benchmark rate is still low.
"Put those two things together, and the most compelling argument right now is that the BOJ should move relatively quickly to raise rates," said Momma, currently executive economist at Mizuho Research & Technologies. In Momma's base case, the BOJ's policy rate will rise to a terminal rate of around 2% in June or July next year, meaning the board will likely conduct three more quarter-point increases. The median estimate of economists surveyed by Bloomberg put the terminal rate at 1.75%.
This month marked the first time that the BOJ, the Federal Reserve and the European Central Bank all raised rates in the same month. Following the September BOJ gathering, the yen weakened despite the rate change after two board members, Toichiro Asada and Ayano Sato, voted against the hike. The two are the newest members of the board after having been chosen by Prime Minister Sanae Takaichi earlier this year. The premier is known for her support of monetary easing.
"I don't know if there will be dissents again, but I don't think they will change the course of BOJ rate hikes," Momma said. He said it's unlikely the government will attempt to prevent the BOJ from normalizing its policy settings, as doing so could trigger further yen weakness. A weak yen adds to inflationary pressures, as Japan relies heavily on imports to meet its energy and food needs.
Pricing in the overnight swaps market shows that as of Friday afternoon, traders were assigning a 30% chance of a hike at the next decision on Oct. 30. Economists see a slightly slower pace of action. In a Bloomberg survey ahead of the September meeting, January was the most popular pick for a follow-up hike, chosen by 58% of respondents. About 35% saw the BOJ acting again in December.
Momma doesn't agree with the majority view.
"The focus of the debate is really whether the BOJ will conclude that it can't wait until December to raise rates," Momma said. "I think the possibility of delaying the next hike until January or later is extremely low. "
Bank Of Japan Interest Rates Inflation Monetary Policy Kazuo Momma
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