Former Executive Director of Monetary Policy at the Bank of Japan, Eiji Maeda, believes that the new Prime Minister, Shigeo Ishihara, will not hinder the Bank of Japan's interest rate hike process, and he expects January next year to be the most likely time for the central bank's next rate hike. Maeda pointed out that the Bank of Japan may raise interest rates in January, by which time it will have been half a year since the July rate hike, and the central bank will release its latest economic forecasts. Before that, the central bank will focus on three key factors: the US presidential election, the trend in service prices, and the momentum before the annual wage negotiations. Although Ishihara stated last week during a meeting with Bank of Japan Governor Kazuo Ueda that the economy is not ready for a rate hike, Maeda believes that Ishihara's comments will not have much impact on the rate hike process.
Maeda said that the possibility of the Bank of Japan raising interest rates will be in December or March, depending on the impact of the aforementioned key factors. He emphasized that the possibility of the central bank raising interest rates at the next policy-making on October 31st is "almost zero," as it would give the impression of raising rates every three months. After meeting with Ueda last week, Ishihara stated that the economy is not ready for a rate hike, but later clarified that he agrees with Ueda's thoughts.
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In his inaugural speech after becoming Prime Minister, Ishihara emphasized that his top economic task is to defeat deflation and put the country on a stable growth trajectory. Although he stated that the Japanese economy is not yet ready to accept another rate hike, Maeda believes that Ishihara's comments will not have much impact on the rate hike process, as Ishihara has inherited the economic stance of his predecessor, Fumio Kishida.
Maeda expects that the current borrowing costs will be raised by 0.25% every six months, reaching around 1% by January 2026. The latest economic data shows that the Japanese economy is recovering well, with basic wages increasing by 2.9% in August, a record high, and key inflation indicators accelerating for the fourth consecutive month.
Maeda reiterated that the central bank has "enough time" to sift through the uncertainties of the economy and financial markets before considering the next policy adjustment. Most Bank of Japan observers agree with Maeda's view that the possibility of a rate hike this month is very low.
Maeda said that after the financial market turmoil that erupted a few days after the Bank of Japan adjusted interest rates on July 31st, the authorities may be extra cautious and send a signal of the next step when approaching the adjustment of interest rates.
In summary, despite market uncertainties, former Executive Director of Monetary Policy at the Bank of Japan, Eiji Maeda, believes that the new Prime Minister, Shigeo Ishihara, will not hinder the central bank's interest rate hike process, and he expects January next year to be the most likely time for the central bank's next rate hike. During this period, the central bank will closely monitor key economic indicators and global political developments to determine the specific timing of the rate hike.
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