NIKKEI225 Flat as Focus Pivots to BoJ Meeting & Rate Hike Possibilities
The central bank is having its last meeting of the year next week, investors are analyzing the chances of another rate hike.
- PPI Index shows rise in inflation
- BoJ Governor Ueda states another rate hike approaching
- Reuters poll: over 50% of economists see hike at next meeting
The NIKKEI225 opened flat today as the market gears up for next week’s BoJ policy meeting. Today’s PPI Index showed a rise of 3.7% YoY compared to 3.6% last month. Analysts had expected a lower rise of 3.4%.
Rate Hike Probability
A Reuters poll of economists showed that just over 50% see rate hike at the BoJ meeting next December 18-19. While 90% of the economists see the central bank raising rate by the end of March 2025 to 0.5%.
In sharp contrast to the survey, the financial markets are pricing in a 30% probability of a rate hike at the next meeting.
NIKKEI225 Live Chart
BoJ Policymakers’ Talk
In a recent interview, Ueda the BoJ governor, said that another rate hike was on its way. However, he fell short of giving any clues to the exact timing of the action.
Previously, board member Nakamura a dovish policymaker, stated that he wasn’t opposed to raising interest rates, and that the decision should be based on data.
Other comments in the past have clearly indicated that there is room for policy normalization. Indicating that rates are still far away from the neutral level as inflation stays above the 2% target.
Reasons for a Rate Hike
The central bank has stated the need to normalize interest rates since the accommodative monetary policy is creating increasing price pressures.
BoJ officials have pointed to rising wage growth, a moderately expanding economy, and imported inflation risks from a weak yen.
The final decision I believe will be a close call, one driving factor I believe is the yen. If the USD/JPY stays well below 160, the BoJ may leave the decision for 2025.
The central bank is also considering the volatility another hike may have on the stock market. The last hike saw the NIKKEI225 lose over 20.5% in 3 days before stabilizing.
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