Yahoo Finance BOJ Research Notes Indicate Interest Rate Hike Is Still on Table
(Bloomberg) -- The Bank of Japan released a pair of research papers highlighting the persistence of inflationary pressure in the economy, indicating there is still a case to be made for another interest rate hike.
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The notes released Tuesday highlight the potential impact of the nation’s chronic labor shortage on wages and the shift in corporate behavior with regards to setting prices in the services sector. The papers were compiled by officials in the bank’s economics department and, as is customary, they came with a standard disclaimer that the views belong to the authors and don’t necessarily reflect the BOJ’s official stance.
“Business price setting behaviors are shifting amid intensified upward pressures on wages,” a paper about service prices noted. It’s important to investigate whether this phenomenon will spread further by comprehensive analysis, it said.
The yen advanced to about 146.40 to the dollar from around 147.00 after news of the research papers was published, before shedding some of those gains.
While the conclusions of both notes are in line with what the BOJ has said to date, they send a fresh reminder that a rate hike is still worthy of consideration even after Governor Kazuo Ueda’s hawkish signals last month contributed to a selloff in global financial markets in early August. Ueda is scheduled to appear in parliament on Friday to elaborate on the thinking behind the July 31 hike and discuss the inflation outlook.
Ueda’s right hand man Shinichi Uchida struck a clear dovish tone following the market turmoil, leaving market players wondering if another rate hike was still possible this year. Uchida, a deputy governor, said authorities won’t hike rates at times when the market is unstable, and the bank needs to keep its current interest rate level “for the time being.”
What Bloomberg Economics Says...
“Don’t take Uchida’s speech as signaling the BOJ has made a dovish turn. Why? He emphasized the policy rate is “very low in real terms” and that the BOJ will keep adjusting it if the economy tracks the central bank’s forecasts.”
— Taro Kimura, economist
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The BOJ’s monetary board is widely expected to stand pat when it next sets policy on Sept. 20, but most economists expect another hike later this year or in January, according to a survey conducted earlier this month.
There were three authors of the paper on the services sector and five for a paper on the labor market. The documents are only available in Japanese.
The paper on the impact of the labor shortage underscored structural changes in Japan’s labor market that may give workers more leverage to demand higher compensation.
“There is a possibility that wage setting behaviors by companies will be more active” after improvement in labor market liquidity and an emerging link between salaries of regular workers and part-timers, the researchers wrote.
--With assistance from Ken McCallum.
(Updates with details on authorship of papers in 8th paragraph)
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