Sources say the Bank of Japan will pledge further interest rate hikes at its policy meeting next week.
TL;DR
The Bank of Japan is expected to commit to further interest rate hikes next week, with the pace dependent on economic responses. It will focus on past rate impacts rather than neutral rate estimates for future decisions.
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According to ChainCatcher, citing three sources, the Bank of Japan may maintain its commitment to continue raising interest rates next week, but will emphasize that the pace of further rate hikes will depend on the economy's response to each rate increase.
Bank of Japan Governor Kazuo Ueda has essentially announced a December rate hike ahead of schedule, and the market has almost fully priced in the possibility of raising the rate from 0.5% to 0.75% in December. Market focus has now shifted to the extent to which the Bank of Japan can raise rates to a neutral level. Sources say that although the central bank may internally update its estimate of the policy rate's distance from what is considered neutral, it will not use this estimate as the primary communication tool for future rate hike paths due to the difficulty in making precise predictions.
Sources indicate that, instead, the Bank of Japan will explain that future interest rate hike decisions will be based on considerations of how past rate hikes have affected bank lending, corporate financing conditions, and other economic activity. One source stated, "Japan's real interest rates are very low, which allows the Bank of Japan to continue raising rates in several phases," and two other sources shared the same view. (Jinshi)