BOJ to hike rates in Dec as yen weakens and Trump returns, majority of analysts say: Reuters poll

By Satoshi Sugiyama

TOKYO (Reuters) - The Bank of Japan will raise interest rates again at its December meeting as a strengthening economy and concerns over the depreciating yen prompt policymakers to act, according to just over half of economists in a Reuters poll.

The BOJ is also likely to keep pushing interest rates higher in the wake of Donald Trump's Nov. 5 election victory, most economists said, as markets brace for a slew of inflationary policies under the new administration.

In the Nov. 13-21 poll released on Friday, 56% of economists, 29 of 52, said the BOJ would raise borrowing costs again by end-year, compared with 49% in a poll last month. The median prediction for the end-year rate was 25 basis points higher at 0.50%.

Analysts said the economy and prices moving on track with the BOJ's outlook, the receding downside global economic risks and the yen's depreciation would prod the Japanese central bank to tweak rates.

"If the BOJ does not act in December, there is a risk the yen will weaken further by the end of January when the next meeting is scheduled, and that the bank will fall behind in its response," said Kazutaka Maeda, an economist at Meiji Yasuda Research Institute.

The weak yen - which had pushed up import costs and inflation - was among the factors that led to the BOJ's decision to raise interest rates in July.

BOJ Governor Kazuo Ueda said this week the economy was progressing towards sustained wage-driven inflation and warned against keeping borrowing costs too low. He said the BOJ will "seriously" take into account the impact yen moves could have on the economic and price outlook.

About 90% of economists, or 44 of 49, forecast the BOJ would have lifted rates to 0.50% by end-March. Two who had predicted a hike to 0.50% by end-year expected the rate to be 0.75% by the end of the first quarter.

Among a smaller sample of 20 who provided monthly forecasts and anticipated either a rate hike next year or no further increase at all, 90%, or 18, chose January. That was up from almost three-quarters in October's poll and September's 60%.

Additionally, 96% of economists, or 24 of 25, expected Trump's return to the White House would encourage the BOJ to raise interest rates, the poll found.

Respondents said the president-elect's economic policy, including tax cuts and tariffs, would reignite inflation in the U.S. which would also stoke inflationary pressure in Japan.

"In reality, the BOJ would like to proceed with raising interest rates carefully, taking into account the impact on the economy and other factors," said Mitsuo Fujiyama, senior economist at the Japan Research Institute.

"But with import inflation causing prices to rise again, it feels like they have no choice but to raise interest rates."

The median of 26 economists who offered their view on what the BOJ's terminal rate should be was 1.00%, with a range of 0.50% and 2.50%.

The BOJ ended negative interest rates in March and raised its short-term policy rate to 0.25% in July on the view Japan was on the cusp of durably achieving its 2% inflation target.

Japan's economy expanded an annualised 0.9% last quarter, slowing from the previous three months on tepid capital spending though an unexpected pickup in consumption was a bright spot.

(Other stories from the Reuters global economic poll)

(Reporting by Satoshi Sugiyama; Polling by Rahul Trivedi and Anant Chandak in BENGALURU; Editing by Jonathan Cable and Shri Navaratnam)