A former executive director of the Bank of Japan responsible for monetary policy stated that Trump's victory in the US presidential election has increased the uncertainty of the Bank of Japan. If the yen's weakening trend further expands, it will be a potential catalyst for a recent rate hike.

Former Bank of Japan senior official Kazuo Momma stated in an interview on Thursday that the US election led to an increase in uncertainty, not only for the Bank of Japan but for everyone globally. The only possible reason for the Bank of Japan to raise rates early may be a rapid weakening of the yen.

Momma believes that the yen falling to 160 against the US dollar could be a key threshold for policymakers. However, the timing of any exchange rate changes will also depend on the public's level of dissatisfaction, as households are concerned about the prospect of import costs leading to inflation.

Former Japanese Prime Minister Fumio Kishida stepped down due to public anxiety about rising living costs, which weakened his approval ratings.

Momma said that as the Bank of Japan has stated its intention to raise the benchmark interest rate from the current 0.25% to around 1% by the end of the fiscal year in March 2026, it is reasonable to bet on a rate hike in January next year. He believes that rate hikes will occur approximately every six months.

"Nevertheless, there are still many uncertainties, so I am not sure how meaningful it is to discuss the situation now. There is a high possibility of it being postponed."

The Bank of Japan will hold its next policy meeting in mid-December and make a decision on the 19th. Among the Bank of Japan watchers surveyed by Bloomberg, slightly more than half expect a rate hike next month, and 87% predict a rate hike in January next year.

Junichi Kanei said that the political climate in japan may also play a decisive role in the timing of the selection, as some leaders have already expressed their reluctance to see the central bank take action early.

An important potential ally of the Ishiba government, Yuichiro Tamaki, told Bloomberg last week that the Bank of Japan is unlikely to raise interest rates before March next year. Just a month after Ishiba took office, he himself also said that the economy is not ready for a rate hike.

"The government has stated that their top priority is to end deflation, they will draw up additional budgets and discuss tax reforms to boost the economy," Kanei said. "In this situation, it can be said that the Bank of Japan has no need to rush."

The Bank of Japan will evaluate various factors including the yen, the US economy, and japanese politics at the last moment before the next policy decision. One of the challenges is communication.

Kanei said that if the authorities believe they may take action, they will make greater efforts to send notifications to avoid the kind of market turmoil seen after the rate hike on July 31, when the Bank of Japan was criticized for blindly guiding traders.

"In this way, when they do decide to raise rates in December, the market will not be surprised," Kanei said. "They will send signals in advance."

Editor/Rocky