BOJ Rate Hike Is Likely Within a Year, Ex-Chief Economist Says

BOJ Rate Hike Is Likely Within a Year, Ex-Chief Economist Says

© Reuters.  BOJ Rate Hike Is Likely Within a Year, Ex-Chief Economist Says© Reuters. BOJ Rate Hike Is Likely Within a Year, Ex-Chief Economist Says

(Bloomberg) — The Bank of Japan is likely to raise its yield target within a year, according to the central bank’s former chief economist, who says inflation is accelerating faster than expected.

The BOJ will adjust its target for 10-year government bond yields after gains in consumer prices excluding fresh food and energy reach 1 percent, said Hideo Hayakawa, who left the BOJ in 2013 after more than three decades. This “core core” inflation gauge is now at 0.5 percent.

“The hike won’t trigger market turmoil because it’s becoming almost consensus that the long-term yield target will be adjusted after the core core hits 1 percent,” Hayakawa said in an interview on Wednesday.

While many private economists forecast inflation to slow later this year, Hayakawa said the core core rate could hit 1 percent around the end of the year. Few saw the indicator rebounding to its current level when it fell below zero last year, which demonstrates a firmer underlying price trend than expected, he said.

The BOJ won’t hint at such a hike far in advance because it doesn’t want to tie its hands in case economic and market conditions change, especially for the yen, Hayakawa said.

One of the biggest risks to his scenario, and to Abenomics, is U.S. President Donald Trump criticizing Japan over a weak yen before U.S. mid-term elections in November, said Hayakawa. There is a good chance of that happening because a stronger yen would help reduce the U.S. trade deficit, he said.

Trump’s attacks would cause stocks to fall, while any response by the BOJ could further inflame rhetoric about currency manipulation, Hayakawa said. “The political use of foreign-exchange rates is very troublesome for Japan,” he said.

Governor Haruhiko Kuroda said Tuesday that the central bank is holding internal discussions about how to exit its monetary stimulus program, but won’t talk about the details because they will depend a range of conditions at the time.

Half of 40 private economists said it would be desirable for the BOJ to adjust its policy when consumer prices excluding fresh food exceed 1 percent in a stable manner, according to a monthly survey by the Japan Center for Economic Research released last month.

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