The Bank of Japan (BOJ) is expected to maintain its benchmark interest rate at 0.25% during its upcoming policy meeting this week, as policymakers seek clarity on domestic wage trends and external economic uncertainties, including U.S. policy shifts under President-elect Donald Trump, according to a recent CNBC survey.
Survey Results: Rate Hold Favored
Out of 24 economists polled, 54% believe the BOJ will leave rates unchanged at its two-day meeting concluding Thursday. An equal number expect a rate hike to occur in January, reflecting the central bank’s cautious stance as it evaluates wage-driven inflation momentum and overseas risks.
The BOJ, which last raised rates in July, has signaled readiness for further tightening but remains wary of premature moves. Governor Kazuo Ueda recently noted the central bank is nearing another hike “in the sense that economic data are on track,” but flagged wage growth uncertainties and U.S. policy risks as key considerations.
Economic Trends and Challenges
Japan’s interest rates remain the lowest among developed economies, reflecting decades-long policies to combat deflation. This approach has weakened the yen, boosting exports, tourism, and carry trade activity — trends that could reverse if Japanese rates rise while other central banks start easing.
Recent data suggests Japan’s economy is progressing toward the BOJ’s 2% inflation target, underpinned by steady wage growth. However, economists say the BOJ may delay further action until it gauges outcomes from spring wage negotiations and assesses Trump’s potential trade and tariff policies.
“Policymakers need clarity on whether wage increases, particularly at small and medium-sized enterprises, can be sustained,” said Akira Otani of Goldman Sachs Japan. Japanese unions typically finalize wage negotiations by March, ahead of the fiscal year starting in April.
Market Sentiment and Communication Issues
Market expectations for a December rate hike have shifted significantly. Overnight swap markets now assign a 77% probability of no change, compared to 35% at the end of November. Teppei Ino of MUFG Bank attributed this to media reports signaling the BOJ’s preference to hold rates steady, though he cautioned the BOJ could act abruptly if the yen depreciates further.
“The upcoming FOMC meeting and yen levels remain critical factors,” Ino said, pointing to a potential threshold of USD/JPY 155 that could force the BOJ’s hand. As of Monday, the yen traded around 154 to the dollar.
Divergent Views and Rate Hike Possibilities
Some analysts, however, still expect the BOJ to act this week. Nomura forecasts a 25-basis-point hike, citing economic fundamentals aligning with inflation targets. Nevertheless, Nomura’s analysts acknowledged the BOJ could defer the decision if it prioritizes U.S. policy risks and quieter markets during the holiday season.
“Uncertainty over government fiscal support for households, particularly the size of a proposed income threshold increase, is another factor,” noted Kyohei Morita of Nomura.
Currency at the Forefront
The yen’s performance remains a pivotal factor influencing BOJ policy. Economists warn that accelerated yen depreciation could provoke public backlash and pressure the central bank to act more aggressively.
“An excessively weak yen could upset the government, forcing the BOJ to tighten policy faster,” said Kazuo Momma of Mizuho Research, who expects a January rate hike.
Conversely, HSBC’s Jun Takazawa highlighted the dual risks of yen fluctuations: “While a stronger U.S. dollar could accelerate the BOJ’s normalization efforts, excessive yen appreciation might delay hikes, undermining reflation progress.”
The CNBC survey predicts the yen will average 147.4 per U.S. dollar by the end of 2025. Last week, the dollar gained 2.4% against the yen as traders pared back bets on a BOJ rate hike this month.
