The delicate balance of Japan's economy is under the scrutiny of both domestic and international observers as they look to the Bank of Japan (BoJ) for signs of its next monetary policy movesAgainst a backdrop of increasing uncertainty in global markets, particularly stemming from the United States, former BoJ policy board member Makoto Sakurai has shed light on the growing likelihood of the central bank postponing its next interest rate hike until MarchIn a detailed interview, Sakurai emphasized the prevailing uncertainty surrounding various economic metrics, suggesting that this unpredictability poses significant obstacles to the decision-making process regarding interest rate adjustments.

As Sakurai made these observations, the BoJ's watchers were keenly tuned in, eager to capture any signals indicating when the bank might decide to alter interest ratesHe conveyed that given the anticipated changes in policy and potential market volatility stemming from the early days of Japan's new government, the BoJ would likely adopt a more cautious approach

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In fact, he estimated a 70% probability that any rate adjustment would be pushed to March rather than occurring imminently.

Reflecting on previous hikes, Sakurai recalled that the last increase, which took place in July 2022, was primarily triggered by the rapid depreciation of the yenInterestingly, the yen has once again fallen to its lowest level in nearly six months, nearing the psychologically significant threshold of 160. However, he argued that the current state of the yen should not be a direct impetus for a rate hike this month, aligning with the ongoing dialogue he maintained with BoJ officials during his tenure.

Sakurai projected a scenario where, if the BoJ opts to maintain interest rates in January, the yen could continue to drop below 160. Such movements in the market, he contended, could ultimately provide clearer reasoning for the central bank’s decisions in March, potentially smoothing out the process of deciding whether to raise rates.

Meanwhile, BoJ Governor Kazuo Ueda has echoed the importance of closely monitoring the economic policies enacted by the new U.S

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administration, though he has left the duration of this observation somewhat vague, inviting a multitude of interpretations from analysts and economistsSakurai agrees that the risks presented by the U.Scould serve as legitimate reasons to delay a rate increase, yet some economists argue for a more proactive stance from the BoJ—asserting it should adjust its policy before risks become manifest, given that Japan's current economic situation aligns with the Bank's expectations.

Reiterating his commitment to a conditional approach, Ueda mentioned earlier in the week that the BoJ would contemplate raising rates should the economic landscape persistently improveMarket participants are currently anticipating that by the conclusion of the January 24th meeting, the possibility of a rate hike could be around 50%, perhaps escalating to approximately 80% by March.

Beyond the economic implications stemming from the U.S., the ongoing negotiations surrounding spring wage increases have emerged as another crucial element highlighted by Ueda

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Delving deeper, Sakurai noted that with the current global economic landscape remaining unpredictable, if stability can be maintained, the initial outcomes from the wage negotiations set to begin in March could very well follow last year’s trajectoryThis, in turn, might ignite corporate enthusiasm for salary increases, which could serve as a vital catalyst for driving wage growth that injects new life into the economy.

Looking ahead, Sakurai's expert assessment suggests that the central bank could undertake roughly two rate hikes per year in its monetary policy operations, though he stressed that this should not be viewed as a rigid timelineInstead, such decisions will be made flexibly, in response to the prevailing economic conditionsHe indicated that during times of robust economic recovery, the BoJ must not hesitate to act and seize opportunities for effective regulation; conversely, in the face of economic sluggishness or uncertainty, it should avoid rash decisions that would exacerbate economic burdens

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