By Leika Kihara
YOKOHAMA (Reuters) – The Bank of Japan will discuss whether to raise interest rates next week, as hopes for steady earnings rise and the outlook for U.S. policy will become clearer in President Donald Trump's first speech, Deputy Ryozo Himino said.
In a speech to business leaders in the city of Yokohama, Himino said on Tuesday that it would be “unusual” for real interest rates to remain negative once Japan overcomes the shocks and factors that triggered the downturn.
Various surveys and reports from regional branches of the central bank have raised hopes that wage growth will remain strong this year, he said.
Himino also said the US economy is expected to remain strong for the time being, and the “broad direction” of US economic policy may be clear in Trump's inaugural address on January 20.
“The board will discuss about raising the interest rate next week and reach a decision, based on the economic forecast and the price stated in our quarterly report,” he said.
The comments came ahead of the BOJ's two-day policy meeting that concludes on Jan. 24, when some analysts expect the bank to raise short-term rates from the current 0.25. The board will issue new quarterly growth and price forecasts that serve as the basis for setting monetary policy.
Himino's views on wages and the outlook for US policy have been closely watched by markets, after Governor Kazuo Ueda cited uncertainty about the outlook for domestic wages and Trump's policies as reasons for holding off on raising rates last month.
In a quarterly report analyzing the regional economy released last week, the BOJ said wage increases were widespread across firms of all sizes and sectors, indicating that conditions for near-term growth continue to take hold.
Prospects for stable incomes and rising import costs due to the weak yen have raised concerns within the BOJ that rising inflationary pressures could lead to an improvement in inflation this month, sources told Reuters.
The BOJ ended negative interest rates in March and raised its short-term interest rate target to 0.25% in July on the assumption Japan was on track to permanently reach its 2% inflation target.
Ueda has shown a willingness to raise prices even further if increased wage increases support consumption and allow companies to maintain rising prices not only for goods but also for services.