Former board member of the Bank of Japan: Trump's victory may exacerbate the depreciation of the yen, forcing the central bank to raise interest rates earlier.

Former Bank of Japan board member Kazuo Momma pointed out that Donald Trump's victory in the US presidential election has increased the uncertainty facing the Bank of Japan. If this trend continues, the yen may depreciate further due to Trump's election, which could prompt the Bank of Japan to raise interest rates earlier. In an interview on Thursday, Momma elaborated on this point, discussing the yen exchange rate, timing of interest rate hikes, and the impact of the Japanese political climate on central bank decisions. Momma stated that Trump's victory not only increased uncertainty for the Bank of Japan but also global uncertainty. He emphasized that a rapid depreciation of the yen may be the only reason for the Bank of Japan to raise interest rates earlier. Following the news of Trump's victory, the yen to US dollar exchange rate dropped significantly, reaching around 154.40 by Thursday noon. Momma believes that the rate of 160 yen to 1 US dollar could be a key threshold for policymakers, but the specific timing of the interest rate hike will also need to consider public concerns about rising import costs and escalating inflation. Furthermore, Momma pointed out that given the Bank of Japan's plan to raise the benchmark interest rate to about 1% by the end of the fiscal year ending March 2026, an interest rate hike in January seems logical, and the rate hike cycle may be every six months. However, he also admitted that the current uncertainty is very high, so the timing of the interest rate hike may be delayed. The Bank of Japan is set to hold a policy meeting in mid-December and is expected to make a decision on the 19th. Over half of Bank of Japan watchers expect a rate hike next month, with 87% expecting action in January next year. At the same time, Momma also mentioned that the political climate in Japan may also have a decisive impact on the timing of the interest rate hike. Some leaders have expressed reluctance to see the central bank raise interest rates early. For example, potential ally of the Suga government, Yuichiro Tamaki, stated last week that there should be no rate hike before March. Suga himself also said a month after taking office that the economy is not ready for a rate hike. In this scenario, Momma believes there is no need for the Bank of Japan to rush to raise rates. In the decision-making process, the Bank of Japan will consider various factors such as the yen exchange rate, the US economy, and Japanese politics. Momma also emphasized the importance of communication to avoid market turmoil like after the rate hike on July 31st. He said that if the central bank decides to take action in December, they will signal in advance. In conclusion, Trump's victory in the US presidential election has had a profound impact on the Bank of Japan, increasing its uncertainty. The depreciation of the yen may be a key factor in prompting the central bank to raise interest rates earlier, but the specific timing of the rate hike will need to consider multiple factors, including public concerns, political climate, and communication between the central bank and the market.