Bank of Japan signals December interest rate hike
Governor Kazuo Ueda adopted a hawkish tone as the central bank seeks to manage inflation risks.
The Bank of Japan (BOJ) has signalled a potential interest rate hike in December, according to a report by the Economic Times. Governor Kazuo Ueda indicated that policymakers would discuss monetary policy with attention to upside inflation risks at the next meeting.
Japan's current policy rate is 1.25 per cent. A December increase would bring the rate to 1.5 per cent, marking a departure from the country's era of ultra-loose monetary policy.
The central bank is focused on preventing inflation from overshooting its 2 per cent target. Core inflation reached 2.1 per cent in September, while the economy expanded at an annualised rate of 1.4 per cent in the second quarter.
Nobuyasu Atago, chief economist at Rakuten Securities Economic Research Institute and former BOJ official, said a December increase is highly likely. He noted uncertainty regarding whether the bank will continue tightening next year toward a potential 1.75 per cent rate.
The BOJ faces uncertainty regarding the neutral interest rate, which staff estimates place in a broad range of 1.1 per cent to 2.5 per cent. Governor Ueda acknowledged that lending conditions are becoming tighter for smaller businesses, though he stated overall financial conditions remain accommodative.
Policymakers remain divided on the pace of increases. While Hajime Takata has supported faster tightening, two policymakers appointed by Prime Minister Sanae Takaichi are considered to favour a more cautious approach.