BOJ Hawkish Member Signals Spring Rate Hike Possibility

A hawkish member of the Bank of Japan's (BOJ) policy board, Naoki Tamura, has suggested that the conditions for the central bank's next interest rate hike might be met as early as spring. His remarks have fueled market speculation, with overnight swaps indicating a 75% chance of a benchmark rate increase by April, a notable jump from 40% a month prior.

Tamura specified that achieving the 2% price stability target would depend on confirming that wage growth for the year aligns with targets for a third consecutive year. He noted that despite inflation exceeding 3% for four years, persistent cost-of-living increases for households and input prices for firms mean Japan has not yet reached true price stability.

The BOJ's next policy decision is scheduled for March 19. Tamura's comments, along with those of another dissenter, Hajime Takata, suggest potential internal division if Governor Kazuo Ueda opts to maintain the current policy. The upcoming release of annual pay negotiation results in mid-March is a key data point that has historically influenced BOJ decisions.

Tamura also indicated that the current 0.75% policy rate has had a limited impact on the economy, suggesting there is still significant room to move towards a neutral interest rate. This implies that even with a rate hike, financial conditions would likely remain accommodative.