(Bloomberg) -- The start of an extraordinary diet session will likely give Bank of Japan Governor Kazuo Ueda an opportunity to steer expectations related to rate policy at a time when market bets on a near-term hike have been ramping higher.
Japan’s parliament will convene the extraordinary session from Thursday until Dec. 21, with lawmakers set to discuss plans for an extra budget among other topics. During such sessions, the BOJ chief is usually called to testify at gatherings of the budget or financial committees to explain his views on monetary policy, inflation and the economy.
No date is yet set for an appearance by Ueda, but if he’s asked to appear before lawmakers his views will draw intense scrutiny after market participants added to bets that the BOJ will raise borrowing costs at the board meeting that concludes on Dec. 19. Traders see a roughly 60% chance of a move at that time, up from around 30% at the beginning of November.
Ueda has pledged to ensure the central bank communicates carefully after the bank’s July 31 hike was criticized for surprising many market participants, leading to market turmoil in early August that saw Japan’s benchmark equity index dip by a record.
While the confab that starts Thursday is called an extraordinary diet session, it has become customary for parliament to hold a session at this time of year. During a 55-day session last year, Ueda appeared on five occasions, including hours-long question-and-answer sessions in both the upper and lower houses.
BOJ watchers will be monitoring to see if Ueda drops clear hints either to push back against market expectations for a hike or to support them. If he only reiterates what he has said to date, that could be taken as a sign that the market’s view is correct.
Ueda last week said it’s “impossible” to predict the outcome of the policy decision on Dec. 19 as there’s a vast amount of new data and information to sift through before that date. The BOJ has said it will raise its policy rate from 0.25% if its economic outlook is realized.
Japan’s recent data have indicated that economic and inflation trends are developing in line with the BOJ’s projections, underpinning expectations among more than 80% of surveyed economists that the bank will raise borrowing costs by January.
Among potential hurdles for the December move is political opposition. Prime Minister Shigeru Ishiba lost a majority in an lower house in a national election last month and must cooperate with opposition parties to compile a budget and revise laws.
Key opposition party leader Yuichiro Tamaki has said the BOJ shouldn’t raise rates before March as it monitors wage trends. Motohisa Furukawa, a senior official in Tamaki’s Democratic Party for the People, told Bloomberg Wednesday that the bank shouldn’t rush to make any increases in the benchmark rate.
©2024 Bloomberg L.P.