Deputy Governor of the Bank of Japan: The board will discuss the necessity of raising interest rates next week.

Bank of Japan Deputy Governor Kiyohiko Nishimura stated that the board of directors of the central bank will discuss raising interest rates next week, hinting at the possibility of a rate hike and explicitly stating that this option will be considered. Nishimura made his remarks on Tuesday in Yokohama while addressing local business leaders, saying, "It is difficult to judge the right timing when implementing monetary policy, but it is crucial." He stated, "The board will discuss whether to raise policy rates based on the outlook to be summarized at the monetary policy meeting on January 23-24." These comments highlight the possibility that the Bank of Japan may raise borrowing costs this month, with most observers believing that the central bank will raise rates in January or March. Nishimura also mentioned that there are both upside and downside risks, agreeing with Governor Haruhiko Kuroda that the momentum of wage increases this year and the economic policies under the new government in the U.S. are worth watching. During his speech, the yen briefly fell 0.3% against the US dollar to 158.02 before rebounding to around 157.50. Japanese government bond futures trimmed losses, while the Nikkei index fell to its daily low. Overnight index futures contracts estimated a 60% chance of a rate hike at the Bank of Japan's meeting next week and an 83% chance in March. In his final scheduled speech before the Bank of Japan's policy board meeting next week, Nishimura expressed his expectation that wage growth will remain solid this year. He mentioned labor shortages, minimum wage increases, and recent surveys, which indicate that wage growth has roughly reached or exceeded levels from a year ago when unions and companies agreed to the largest pay raises in 30 years. Another key issue of concern for Bank of Japan observers is how long the central bank hopes to monitor the uncertainty of U.S. economic policy. Nishimura stated that this is an issue that the Bank of Japan must continue to monitor, although the overall situation may become clearer shortly after President Trump takes office at the White House, just days before the Bank of Japan's policy meeting. Nishimura stated, "Continuous monitoring is necessary, but next week's inaugural speech will give us an idea of the general direction of the new government's policies." Many experts "expect the U.S. economy to continue to perform strongly in the near future, which contrasts sharply with the outlook of concern about downside risks around August last year." The deputy governor also reiterated that if the central bank's expectations continue to materialize, the bank will raise rates. Nishimura stated that creating surprises is not desirable unless during an economic crisis. Meanwhile, the market cannot fully digest the results of the policy meeting because the final decisions are made through discussions at the meeting. Sources familiar with the matter told Bloomberg earlier this month that while no rate decision has been made yet, Bank of Japan officials may discuss raising inflation expectations at the policy meeting. The sources indicated that this is mainly due to the recent surge in rice prices and the weakening of the yen since the last outlook report in October. "The development of prices and inflation expectations, including the underlying economic mechanisms, seems to be on the right track," Nishimura said. "If this outlook continues to materialize, the central bank will accordingly raise policy rates and adjust the degree of monetary easing."