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Japan’s economic outlook for Q4 2024
The BOJ may hike rates in Q4, but political changes could push it to December
Future rate hikes depend on economic and inflation trends
December is a possible window for the next rate increase
BOJ eyes Q4 interest rate hike
The Bank of Japan (BOJ) has come under the spotlight after its interest rate increase in July, which led to disruptions in global markets. This was a significant shift in BOJ’s monetary policy as it ended the negative interest rate policy.
Deputy Governor Shinichi Uchida and other officials have since clarified the BOJ’s position, stating that they will avoid rate hikes when markets are volatile. Despite this, Governor Kazuo Ueda has reaffirmed that the BOJ will proceed with rate increases if inflation and economic trends meet their projections.
While central banks in the US, UK and eurozone have started to lower interest rates following aggressive tightening cycles to control inflation, BOJ’s monetary policy stands in contrast to the easing seen in other major economies as the country faced decades of deflation and economic stagnation.
Japan’s economy rebounded in the second quarter, driven by increased household and corporate spending. In August, the core consumer price index (CPI) rose 2.8%, accelerating for the fourth month in a row. Policymakers are optimistic that significant wage hikes will help households cope with inflation, fostering a sustainable economic cycle. Real wages in Japan have risen for two consecutive months, supporting this outlook.
Leadership change may affect BOJ’s plans
The Bank of Japan has revised its outlook on consumer spending while stressing the need for close monitoring of financial markets. Despite recent inflation gains, an October rate hike is doubtful due to insufficient data and the possibility of an upcoming national election.
December is emerging as a more likely window for another rate hike if economic indicators continue to support it. Solid wage growth and stable inflation have bolstered the case for future rate increases, although Japan’s shifting political scene could affect the timeline.
Japan's ruling party has selected former Defense Minister Shigeru Ishiba as its next leader. Ishiba’s victory is likely to be a relief for the Bank of Japan, as he has been a strong advocate for the central bank’s gradual policy normalization, which includes a move towards higher interest rates.
