"Majority of Bank of Japan Policy Board Members Support Interest Rate Hike"

Bank of Japan Monetary Policy Meeting on 23-24

"Expected to Raise Base Rate to 0.5% Annually"

Focus on Market Volatility Post-Trump Inauguration on the 20th

A majority of the Bank of Japan's policy board members, who decide the base interest rate, are expected to support an additional rate hike at next week's monetary policy meeting. It is anticipated that the Bank of Japan will raise the base rate to 0.5% annually.

According to the Nihon Keizai Shimbun on the 17th, more than half of the nine policy board members are expected to favor an additional rate hike at the Bank of Japan's monetary policy meeting scheduled for the 23rd and 24th. The Nihon Keizai Shimbun observed that "the final decision will be made after monitoring the statements of Donald Trump, who will be inaugurated as the U.S. President on the 20th, and the subsequent market reactions."

The Bank of Japan raised the base rate to 0.25% annually at the decision meeting last July. If the rate is increased this time, it will be the third time since the negative interest rate was lifted in March last year, and the first time since February 2007 that the base rate is raised to 0.5% annually. Considering that the 0.5% rate continued until October 2008, it will be the same level for the first time in 17 years.

The Bank of Japan's policy board, which decides monetary policy, consists of nine members, including Governor Kazuo Ueda, Deputy Governor Shinichi Uchida, and Deputy Governor Ryozo Himino. Decisions are made by majority vote, and if five or more members agree, it is passed. The Nihon Keizai Shimbun predicted that "although some policy board members are showing cautious attitudes, the likelihood of a rate hike being decided is high."

Governor Ueda stated on the 15th and 16th, "We will discuss and decide whether to implement a rate hike at next week's decision meeting." Deputy Governor Himino made a similar statement on the 14th. Due to the repeated statements by the governor and deputy governor, market expectations for a rate hike have strengthened. According to Dodan Research, the probability of a rate hike in January is currently over 80% as of the 17th, up from the 60% range on the 14th.

The Bank of Japan has emphasized the 'virtuous cycle of wages and prices' when making rate hike decisions. At the branch managers' meeting on the 9th, it was revealed that the movement for wage increases is spreading even among regional mid-sized and small businesses. Although the results of this year's spring labor-management negotiations are expected in March, the Bank of Japan internally anticipates that 'there will be a proper wage increase.'

The final focus is on U.S. trends. The Nihon Keizai Shimbun reported that "the U.S. economy is showing a solid trend," and "voices within the Bank of Japan are saying that 'the slowdown concerns from last summer have been resolved.'" However, risks remain with the statements and subsequent stock and foreign exchange market volatility following Trump's inauguration. A Bank of Japan official pointed out, "If the market fluctuates significantly, a rate hike will be difficult."

Tokyo Correspondent: Kim Il-kyu