Image Credit: Bloomberg

Bank of Japan officials see little disadvantage in waiting before increasing interest rates while still being open to a hike next week based on data and market changes, as indicated by sources close to the situation.

Even if the BOJ opts to hold off until January or longer, authorities feel this does not carry a significant cost since there are limited signs that inflation might exceed expectations, the sources said.  Simultaneously, some officials are not opposed to a rate increase at this meeting if it is suggested, according to the sources.

The yen declined against the dollar after the report, after some fluctuations. It briefly reached 152.82 against the dollar at about 10:25 p.m. in Tokyo, having previously traded at around 151.60. It was trading at approximately 152.10 to the dollar Thursday morning.

Markets are trying to determine when the BOJ might next raise rates, with December and January both appearing as potential times. This follows mixed messages from officials and news reports, with BOJ Governor Kazuo Ueda stating in a Nikkei interview last month that increases are “nearing.” Just days later, Jiji Press reported worries within the bank about increasing rates too quickly.

Last week, dovish policy board member Toyoaki Nakamura mentioned that he’s not against a hike in general, but needs to review data before making a decision this month. Officials view the next rate increase as a question of time, with the economy and inflation aligning with their forecasts, according to the sources. The officials will reach a final decision only after thoroughly analyzing data and financial markets before announcing the policy decision on Dec. 19, the sources stated.

Ueda and his board are scheduled to discuss whether they need to raise the benchmark rate from 0.25% next week. With the yen not showing strong signs of weakness unlike the situation in July, the officials believe that the risk of the currency driving up inflation has eased.

Among the data points BOJ officials will be closely examining is US CPI data that came out Wednesday, the quarterly Tankan business sentiment survey which will be released on Friday, and the outcome of the Federal Reserve meeting just hours before the BOJ’s policy decision, according to the sources. November inflation in the US rose as expected, reinforcing investors’ beliefs that the US central bank will likely proceed with another reduction to borrowing costs next week.

Paraphrasing text from "Bloomberg" all rights reserved by the original author