Bank of Japan: Gradual path toward neutral rate – ING
ING analysts Chris Turner and Padhraic Garvey argue the Bank of Japan is likely to hike 25bp to 1.25% and then proceed cautiously.
INK analysts Chris Turner and Padhraic Garvey anticipate the Bank of Japan will raise the policy rate by 25 basis points to 1.25% before adopting a gradual approach. They project two additional 25bp hikes in January and April, bringing the rate to 1.75%, which they consider near-neutral. The real policy rate is already negative and needs to be increased, as acknowledged by the BoJ in formal communications.
The concept of a neutral rate, generally seen between 1.1-2.5% in nominal terms, is discussed in various BoJ speeches. Leaving the rate unchanged would likely shock investors, but a 50bp hike is less probable. A 50bp hike could be part of a broader agreement with Washington to lower USD/JPY, reduce the need for large-scale dollar selling intervention, and stabilize JGBs.
However, government resistance to aggressive tightening is expected. The Japanese government's pro-growth strategy may dissuade officials from a more rapid tightening cycle. A near-neutral 1.75% policy rate by April is considered appropriate, considering the consumption tax cut on food and non-alcoholic beverages. BoJ's focus has shifted towards inflation moving onto a sustainable path, with higher input/producer prices likely feeding through into broader CPI.
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Also reported by 1 other outlet
- Japan: BoJ tightening path in focus – ING fxstreet.com
