(Bloomberg) -- Donald Trump’s US presidential election victory intensifies uncertainties for the Bank of Japan, with the yen’s weakening in the wake of the outcome a potential catalyst for a near-term rate hike if the trend extends further, according to a former executive director in charge of monetary policy.
“Uncertainties got elevated not only for the BOJ but for everyone around the world” as a result of the US election, Kazuo Momma, the former BOJ executive, said in an interview Thursday. “Pretty much the only reason the BOJ might raise rates early would probably be a rapid weakening of the yen.”
The currency slumped against the dollar as it became clear Trump would prevail in the election hours after polls closed. It traded around 154.40 at midday in Tokyo Thursday.
According to Momma, a yen rate of 160 per dollar might be a key threshold for policymakers, but the timing of any rate move would also depend on the degree of public discontent as households fret over the prospects for hotter inflation via import costs.
Prime Minister Shigeru Ishiba’s predecessor Fumio Kishida stepped down after anxiety over rising costs of living helped undermine his support levels.
For now a rate hike in January is a logical bet given that the central bank has indicated it will be raising the benchmark from the current 0.25% to roughly 1% by around the end of the fiscal year through March 2026, Momma said. He sees the hiking cycle advancing at about one move every six months.
“Still, uncertainties are extremely high so I’m not sure how meaningful it is to talk about a base case right now,” Momma said. “There is a reasonable chance that it gets delayed.”
The BOJ holds its next policy meeting in mid-December, with a decision on the 19th. Just over half of BOJ watchers surveyed by Bloomberg said they expect a hike next month, with 87% forecasting action by January.
Japan’s political climate could also play a decisive role in the timing, as some leaders have signaled little desire to see the bank make an early move, Momma said.
There should be no rate hike before March, Yuichiro Tamaki, a key potential ally for Ishiba’s embattled government, told Bloomberg last week. The premier himself said the economy isn’t ready for a rate hike just after he took office almost a month ago.
“The government is saying their priority is to end deflation, and they will compile an extra budget and discuss tax reforms to boost the economy,” Momma said. “Under these circumstances, you could say there isn’t a need for the BOJ to hurry.”
The BOJ will be assessing factors including the yen, the US economy and Japan’s politics until the last minute ahead of its next policy decision. One challenge is communications.
If authorities think they might move, Momma said they’ll make more effort to telegraph it to avoid the sort of market turmoil that followed the July 31 hike, when the bank was criticized for blind-siding traders.
“There won’t be a surprise if they decide to go in December,” Momma said. “They will signal that ahead of time.”
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