BOJ hints at January rate hike amid strong wage growth and yen speculation.
- That seems to be a reasonable one-sentence summary of what's to come from the Bank of Japan's upcoming statement on Friday, January 24, 2025
Scouring around several notes on what to expect from the BoJ and the consensus that has emerged is for a rate hike on Friday. Analysts expect the central bank to raise interest rates by 25 basis points at this meeting, reinforcing the virtuous cycle between rising inflation and higher nominal wages.
- The Bank of Japan (BOJ) is growing more confident about the outcome of the spring 2025 wage talks, confirming expectations for a 25-point rate hike at its January meeting. The move follows discussions on regional economic conditions at a meeting of branch managers on January 9, where policymakers assessed wage and inflation trends.
- Deputy Governor Himino said on January 14 that many companies plan to increase wages as much or more than last year, indicating a strong trend in the labor market. The next day, Governor Ueda raised this hope, further increasing the likelihood of a policy tightening move this month.
- At the same time, speculative positions against the Japanese yen have been gradually increasing. With the Federal Reserve turning less negative due to the stability of the US economy, a decision by the BOJ to keep rates steady could encourage further yen weakness, encourage bearish trades and increase inflation driven by imports, which threatens to erode consumer purchasing power.
The BOJ is unlikely to delay action, especially given the market reactions to Donald Trump's first few days.
