5 reasons the Bank of Japan should be wary of hiking rates this week

Via Scotia, preview comments on what to expect from the Bank of Japan.

Out of 46 forecasters within consensus, only 9 expect a hike.

Markets are assigning a higher probability to a 10bps hike that has been floating around 70% odds with about 7bps priced.

The case for hiking rests entirely upon gauging the degree of the BoJ’s confidence that it is durably on the path toward achieving 2% inflation over the medium-term horizon while getting further distance away from the distorting near-zero policy rate of 10bps.

I’m not sure they should have such confidence.

• Tokyo core CPI just reversed prior progress toward firmer readings which sends a cautious signal
• The yen has sharply appreciated in a very short period of time
• There is little evidence that Japan is escaping the grips of falling real wages
• While the annual Shunto rounds of negotiations with unions has driven a sharp acceleration of wage growth over the past two years, this has a concentrated effect on less than 20% of Japanese workers and the evidence this is spilling over into lifting wages elsewhere is very limited.
• Oil prices have ebbed somewhat of late but more importantly have been broadly trended sideways through much of the year; since Japan imports so much, the pass through to inflation risk has ebbed

The BoJ is meeting today and tomorrow. The statement is expected sometime between 0230 and 0330 GMT on Wednesday, July 31, 2024

• that’s 2230 – 2330 US Eastern time on Tuesday, July 30, 2024

Bank of Japan Governor Ueda follows up with his press conference @ 0630 GMT (0230 US Eastern time).

This article was written by Eamonn Sheridan at www.forexlive.com.