No rate hike expected for Sept.; Dec. more likely

Economists, FX strategists and Japan-focused fund managers are split over the timing of the Bank of Japan’s next interest rate hike, according to a new CNBC International survey.

BOJ Governor Kazuo Ueda said last month that the central bank would continue to raise interest rates if inflation stayed on course, while also closely monitoring financial market conditions. 

There is consensus among the 32 analysts polled by CNBC that there would be no change at this week’s BOJ meeting, which concludes Friday. However, the outlook for the October and December meetings is much less certain. CNBC conducted its survey from Sept. 2-13.

The early August volatility spike, the ruling LDP leadership contest and desire for further evidence of wage-price dynamics were commonly cited reasons among analysts as to why a September rate change is extremely unlikely.

“We think the central bank will be keen to move gradually and allow the impact of the July rate hike to be fully felt,” said Jessica Hinds, director in Fitch Ratings’ economics team.

CNBC’s survey found 18.75% of respondents expect a hike for the October meeting, while another 25% said a hike was possible.

About 25% of analysts said a December hike was likely, while 31.25% said it was a “live meeting” meaning the BOJ could adjust monetary policy depending on economic data.

Gregor Hirt, global chief investment officer for multi asset at Allianz Global Investors, sees a strong chance of one hike this year, most likely in October.

“With solid inflation and wage data, alongside resilient growth, the BOJ may want to get one more hike in while the global repricing of yield curves supports Japanese bonds, helping to ease the impact of any policy adjustments and give the Japanese economy time to adjust,” he said.

Masamichi Adachi, the chief Japan economist at UBS, also predicted an October move as long as the BOJ Tankan survey remains solid and market conditions are stable, including “not much noise from politics in both Japan and U.S.”

On the other hand, Richard Kaye, a portfolio manager for Japan equities at Comgest, told CNBC it is highly unlikely the central bank will raise rates again this year, especially if the Japanese yen continues to appreciate. 

“If the yen continues to normalize to its multidecade average of 120-30/U.S. dollar, a major factor in Japanese inflation, namely imported commodity costs, is solved,” he said.

“The main determinant of the yen is the rate or yield gap with the U.S., and the main actor in that is the Fed, and the Fed seems ready to cut.”

The U.S. Federal Reserve is widely expected to cut interest rates at the conclusion of its meeting Wednesday.

The BOJ surprised some market participants in July, when it decided to raise borrowing costs to 0.25% which helped spur a major drawdown of global…