UBS: Interest rate hike? The Bank of Japan is not in a hurry, let's wait until April next year to discuss it.
Based on the given information, this falls under macroeconomic-related information. It is expected that the Bank of Japan will not change any policies this week, as it is still too early to determine a positive feedback loop between wages and prices. UBS predicts that the Bank of Japan will raise the policy interest rate by 10 basis points in April next year, ending the negative interest rate policy, and raise it again by 25 basis points in July. At the same time, forward guidance may be abolished or modified, and YCC also needs further adjustment. If wage growth in the first quarter is disappointing and consumption remains weak, the Bank of Japan may also choose to maintain the status quo.
Regarding market expectations for the Bank of Japan to raise interest rates in the first quarter of next year, or even within this year, UBS stated that it is expected that the Bank of Japan will not change any policies this week (policy rates, asset purchases, YCC, and forward guidance). This is because it is still too early to firmly establish a positive feedback loop between wages and prices. In fact, the spring wage negotiations for the fiscal year 2024 have not even begun. Typically, negotiations for major companies are announced in March for the first round of statistics. Governor Kuroda is cautious and will not create expectations of tightening policies before confirming high wage growth in the market. UBS predicts that the Bank of Japan will raise the policy rate by 10 basis points in April next year to end the negative interest rate policy, followed by a 25 basis point rate hike in July. Then, there will be a pause until April 2025 to address the economic recession in the United States. At the same time, the forward guidance is likely to be abolished or modified. YCC may not be abolished, but further adjustments are needed. Of course, if wage growth in the first quarter is disappointing and consumption remains weak, the Bank of Japan may choose to maintain the status quo.