Arab News Japan

TOKYO: The Bank of Japan’s decision to maintain its current policy rate at 0.25 percent will likely mean that the rate will rise in December rather than October, according to financial analysts Oxford Economics.

This potential interest rate hike could have significant implications for the Japanese economy, affecting everything from consumer spending to business investment.

In its latest report, the Bank of Japan says it is confident that its inflation target will be met in the coming years, with consumption picking up and wages increasing.

Oxford Economics says that as financial markets calm down, the bond market is pricing in an additional rate hike by the BoJ this year, and this appears to be supported by hawkish remarks from BoJ officials.

Both BoJ Governor Ueda and Deputy Governor Himino confirmed that the central bank will continue to hike rates if the economy remains on track to achieving the 2 percent inflation target.

More recently, board member Tamura even mentioned that he saw an increasing risk of inflation overshooting the target and believes the BoJ needs to raise the policy rate to at least 1 percent by FY2026.

The election of a new leader for the ruling Liberal-Democratic Party – and, by extension, a new prime minister – will likely bring about a general election, but the BoJ is unlikely to make a significant change while the political landscape is uncertain.

OE predicts that inflation will likely continue to ease as pressure from past cost increases decreases, but higher wages could potentially push up inflation as they trigger more consumption activities.

The recent decline in oil prices and the reversal of yen weakness could help corporate earnings. The current yen exchange rate is in line with firms’ expectations.