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BOJ Signals Possible Shift as Upgraded GDP Data Fuels Rate Hike Speculation

AInvestMonday, Dec 9, 2024 6:00 am ET
1min read

In an unusually proactive move to enhance communication, the Bank of Japan (BOJ) seems to be laying the foundation for a potential interest rate hike in the coming month. On Monday, the BOJ announced that its Deputy Governor, Ryozo Himino, will deliver a speech in Yokohama to local business leaders on January 14, followed by a press conference. This move is notable since it marks the first time since former Governor Haruhiko Kuroda took office in 2013 that committee members have engaged in such activities prior to the annual initial policy meeting. This presents an opportunity for the BOJ to communicate its views on monetary policy before the meeting.

Enhancing the anticipation of this potential rate hike, Japan's government revised upward the economic growth data for the third quarter, citing improved capital investment and export figures. This revision raises expectations for the BOJ to consider increasing the borrowing costs as the bank approaches its policy meeting on December 18-19. The latest figures reveal that Japan's gross domestic product (GDP) grew at an annualized rate of 1.2% in the three months ending September, surpassing economists' median forecast and initial figures of 0.9%.

Some factors contributing to the revision included a smaller-than-expected decline in capital expenditure, which fell by only 0.1% versus the preliminary data of a 0.2% decline. Additionally, external demand, calculated as exports minus imports, was not as negative as initially reported, lowering economic growth by 0.2 percentage points compared to an initial estimate of 0.4 percentage points. However, private consumption, which constitutes over half of Japan’s economy, only increased by 0.7%, down from an initial 0.9%, highlighting the fragile nature of the recovery.

Despite the upward revision in GDP figures, the path toward a December rate hike remains ambiguous. While the data does not strongly elevate the rate hike prospects, it does not obstruct them either, according to economists' analysis. Looking forward, the BOJ has been gradually retreating from a decade of aggressive stimulus measures, already adjusting short-term interest rates to 0.25% in July.

Despite the improved economic indicators, some analysts caution that Japanese consumption may slow in the current quarter, though a rebound is expected in the first quarter of the coming year on the back of robust wage growth outlook. Meanwhile, uncertainties in external markets, exacerbated by recent global trade tensions, add an element of unpredictability to Japan's economic trajectory. In light of these mixed signals, the anticipated BOJ decision in December remains an open question, with market analysts keenly observing the central bank's next moves.

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