By Leika Kihara
TOKYO, Nov 6 (Reuters) – The Bank of Japan is expected to raise interest rates in December and keep lifting borrowing costs next year until they reach 2% to combat mounting inflationary pressure, the central bank’s former top economist Seisaku Kameda said on Friday.
The global market rout that sent Japanese stocks tumbling on Friday is unlikely to derail a rate hike next month unless volatility persists into the rup-up to the December 17-18 meeting, he told Reuters in an interview.
“The BOJ might pause if we see a full-fledged collapse in the AI boom that hits Japan’s economy through a severe downturn in US growth,” Kameda said.
Otherwise, the BOJ is likely to raise its policy rate to 1.5% in December and keep hiking at a pace of roughly once a quarter until it reaches the terminal rate of 2%, he said.
“Japan’s economy can weather such rate hikes with corporate profits remaining strong and consumption likely to get support from a scheduled sales tax cut on food items,” Kameda said.
Consumer inflation is likely to accelerate in coming months as firms pass on costs including for food products, he said.
With stubbornly high energy costs and rising import prices from a weak yen adding to inflationary pressures, the BOJ raised rates in September after delivering a hike in June – a shorter interval than the roughly twice-a-year hikes in 2024 and 2025.
The BOJ kept rates steady last month but stressed its resolve to combat inflationary risk, reinforcing dominant market bets of a December hike.
At the October meeting, the BOJ also said underlying inflation has hit its 2% target, signalling a more hawkish phase and paving the way for steady rate hikes.
Kameda, who has deep insight into on how the BOJ produces economic forecasts, said the pronouncement came too late. A majority of indicators the BOJ cited as gauges of underlying inflations had hit 2% some time ago, he added.
The delay likely reflected the BOJ’s preference to take rate hikes slowly due to uncertainty on whether inflation would sustainably move around its target, after Japan’s prolonged experience with low price growth or deflation, he said.
But the BOJ made clear of its determination to fight inflation by raising rates in June and September, said Kameda, who is currently an economist at Japan’s Sompo Institute Plus.
“The BOJ’s policy shifted gear around June and July to one that laid the groundwork for a rate hike once every quarter,” he said. “As such, the next rate hike will most likely come in December or, if markets remain unstable, January at the latest.”
(Reporting by Leika KiharaEditing by Shri Navaratnam)
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