BOJ to forego July rate hike, over three-quarters of economists say: Reuters poll

07/19/2024

2 minutes read

2024.07.19 00:46

By Satoshi Sugiyama

TOKYO (Reuters) – The Bank of Japan will skip raising interest rates at its policy-setting meeting at the end of July as it looks to boost tepid economic growth, more than three-quarters of economists said in a Reuters poll.

Instead, the BOJ will likely prioritise scaling back its bond purchase programme even though there is a risk of missing a window to raise rates before the U.S. Federal Reserve cuts them, now widely expected to begin in September.

The poll findings reflect the dilemma the Japanese central bank is facing as raising rates too quickly to normalise policy could dampen a fragile economic recovery, even while it is also under pressure to stem the yen’s sharp decline.

Of the economists who provided a forecast for a specific month when the BOJ will next change rates, 28 of 37 said it would not be this month, the July 10-18 poll showed. That is up from 61% in the previous poll last month.

There has been no consensus on the timing of the BOJ’s next move since it raised its key rate to a range of 0%-0.1% in March from -0.1%.

The most popular choice for a hike in the latest poll was October, with 43%, or 16 of 37 respondents, followed by September (30%) and July (24%). Economists were split between July and October at 39% each in last month’s poll.

“The BOJ will probably avoid the risk of pushing down price stability and the economy by hastily raising interest rates at the same time as reducing its government bond purchases, considering consumption remains sluggish and companies are refraining from shifting prices to consumers,” said Harumi Taguchi, principal economist at S&P Global Market Intelligence.

The BOJ may also be hesitant to hike interest rates before the ruling Liberal Democratic Party presidential contest scheduled for September, said Masato Koike, senior economist at Sompo Institute Plus.

With concerns about a weak yen pushing up import costs, BOJ Governor Kazuo Ueda previously said he would not rule out a rate hike this month. The yen has tumbled about 10% since the start of the year.

However, consumption remains a soft spot for the Japanese economy, with household spending unexpectedly dropping in May as higher prices continued to squeeze purchasing power. The bank will likely trim this year’s economic growth forecast this month, Reuters previously reported.

The BOJ decided last month to lay out details of its bond tapering plan for the coming one to two years at the July meeting, in a move to reduce a balance sheet nearly 1.3 times the size of Japan’s economy, the world’s fourth largest.

Nearly 60% of respondents, 16 of 27, said monthly bond purchases would be reduced to about 5 trillion yen ($32 billion) as the first step, from roughly 6 trillion yen currently. Another 19% said 4 trillion yen and 7% opted for around 5.5 trillion.

By July 2026, those monthly purchases would be cut to about 3 trillion yen, according to 13 of 25 economists.