Bank of Japan Governor Kazuo Ueda recently spoke about Japanese inflation and monetary policy at the International Monetary Fund (IMF) and the World Bank Group 2024 Fall Meeting in Washington, U.S. Despite the recent electoral shock to Japan’s ruling Liberal Democratic Party (LDP), analysts believe it won’t deter the Bank of Japan from its interest rate hike cycle.
In the recent election, the LDP lost its majority in Japan’s lower house for the first time since 2009. This means they will have to collaborate with other parties to form a government. However, experts like David Boling from Eurasia Group believe that the LDP is still the biggest party and will play a significant role in putting together a coalition government, which is positive news.
Prime Minister Shigeru Ishiba intends to continue serving despite the setback, indicating that the government will maintain its focus on the LDP. The political uncertainty precedes an upcoming Bank of Japan meeting, where most economists expect the central bank to keep rates unchanged.
Some economists, like Izumi Devalier from Bank of America, believe that the likelihood of a rate hike by the BOJ this week is minimal. However, despite political instability potentially delaying rate hikes, experts like Katsuhiko Aiba from Citi argue that the BOJ is unlikely to deviate from its rate hike plan even after the election.
Jesper Koll from Monex Group is confident in the BOJ’s independence and its commitment to normalizing monetary policy. The market reacted positively to the election results, with the Nikkei 225 rising and the yen weakening. This is typically good for Japanese exporters and stocks.
Looking ahead, experts predict that corporate earnings and profits in Japan will surprise on the upside, leading to potential growth in the Nikkei. Despite short-term market movements being a knee-jerk reaction, the long-term outlook for Japan’s economy remains optimistic.
Overall, the recent election results in Japan have not significantly altered the outlook for the Bank of Japan’s interest rate hike cycle. The focus remains on stabilizing the economy and ensuring sustained growth despite political changes. The market continues to show resilience and potential for growth as Japan navigates through this transition period.
