(Bloomberg) -- While only about 30% of Bank of Japan watchers say authorities will hike interest rates when they gather next week, more than 90% see the risk of such a move, according to a Bloomberg survey.
Some 14 of 48 economists predict Governor Kazuo Ueda’s board will raise its policy rate from the current range of 0 to 0.1% at the July 31 conclusion of next week’s meeting, according to the poll.
Another 27% said the rate move is likely to come in September, up from 19% in a previous survey, and 35% said the hike will come in October. Some 94% said July would be the earliest timing of a rate hike in their risk scenario.
“The sharp weakening of the yen, the spreading of large pay hikes to small firms as well as the stickiness of underlying inflation all suggest that there’s a strong case for a rate hike at the Bank’s July meeting,” Marcel Thieliant, head of Asia-Pacific at Capital Economics, wrote in a survey response.
Another key point of the meeting will be the extent to which the bank reduces its monthly bond purchases as it takes a first step toward quantitative tightening after maintaining a massive monetary easing program for more than a decade.
Survey respondents predicted the bank would start by trimming its buying by ¥1 trillion to ¥5 trillion per month ($32 billion) beginning in August. The longer-term view projects the BOJ cutting monthly purchases to ¥3 trillion in two years, according to the median estimate.
Click here to read the full survey results.
Among analysts who don’t expect any rate action this month, many said it would be too big of a shock to combine a rate hike with the release of a blueprint for QT, and there’s too much uncertainty around how markets would react to the double-barreled action.
“Chances are slim for the rate hike and the bond cut plan coming in one go,” Naomi Muguruma, chief fixed-income strategist at Mitsubishi UFJ Morgan Stanley Securities Co., said. “It’s hard to imagine the BOJ suddenly taking bold action after it spent 1.5 months finalizing the bond plan to convey its very cautious stance.”
Since the previous policy meeting on June 14, economic data have been more or less mixed. Inflation expectations have stayed elevated while consumer spending hasn’t shown signs of a robust recovery. The yen hit a fresh 38-year low earlier this month, and the government is suspected of having conducted a second round of currency intervention this year to shift the tide.
“It’s as if the BOJ is the one actively guiding the yen lower” by keeping rates significantly low compared with inflation, said Izuru Kato, chief economist at Totan Research.
The likely interventions make a rate hike less likely, according to 22% of the surveyed analysts, while 9% said the actions make it more likely. Another 43% sees no impact on the rate decision.
With the yen helping to keep inflation sticky, consumer spending has fallen for every quarter for a year through March. Economists are almost evenly divided on the impact of consumer spending on next week’s policy decision. Some 43% said it’s too weak to justify a rate hike while 49% said outlays are strong enough.
BOJ officials see weakness in consumer spending complicating their decision over whether to raise interest rates at the meeting, people familiar with the matter told Bloomberg earlier this month.
“This meeting is critical to discern the BOJ’s policy stance going ahead,” said Shigeto Nagai, head of Oxford Economics in Japan. “It’s about whether the BOJ will press on with normalization based on their outlook, or if they will wait for data to confirm whether strong spring wage talk results definitely translate into real income and consumer spending.”
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