BOJ Is Said Likely to Raise Interest Rates at December Meeting

(Bloomberg) — Bank of Japan officials are ready to raise interest rates at a policy meeting later this month, provided there’s no major shock to the economy or financial markets in the meantime, according to people familiar with the matter.

The central bank will also indicate it will continue to raise rates if its economic outlook is realized while remaining cautious on how far they will eventually push rates up, the people said.

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The officials see a high likelihood of increasing the benchmark rate by a quarter percentage point to 0.75% at the end of a two-day gathering on Dec. 19, the people said. A rate hike would push the policy rate in Japan to its highest level since 1995. A key market focus is how aggressively the central bank will point to additional hikes.

Expectations among market players of a looming rate hike jumped this week after Governor Kazuo Ueda said his board would make an appropriate decision on raising interest rates in a speech Monday. That’s similar to the message he gave earlier this year in January ahead of a move to raise borrowing costs.

BOJ officials were aware of how the remarks would be interpreted by the market, according to the people, an indication that investors have drawn the right conclusion. An index of overnight swaps shows that traders see about a 90% chance of the move this month.

Key members of Prime Minister Sanae Takaichi’s government wouldn’t stand in the way of the BOJ if it decides to raise interest rates in December, people familiar with the matter told Bloomberg earlier this week.

With more clarity on the impact of US tariffs and elevated corporate profits continuing to give firms leeway to raise wages, the officials assess that the likelihood has risen for their economic outlook to be realized, the people said.

Still, the bank will continue to sift through incoming data and information until the last minute before reaching a final policy decision, the people said. Officials see a rate hike as an adjustment of monetary easing not a tightening, given that financial conditions will remain supportive for the economy with the real interest rate still below zero, according to the people.

The BOJ will probably suggest the need to examine how the economy responds to each hike to determine the right level of borrowing costs, according to the people.