Bank of Japan may hike rates in October

Takahide Kiuchi, Senior Economist, Nomura Securities believes that Bank of Japan is likely to take a 'wait and watch' stance on rates.

Kiuchi informs that Japan Q2 GDP growth is seen at 1.8%. He feels that there will be no impact of GDP numbers on Bank of Japan's policy.

Kiuchi expects Bank of Japan to hike rates in October, post Tankan survey. He further adds that Bank of Japan is concerned about financing small companies.

Excerpts from CNBC-TV18's exclusive interview with Takahida Kiuchi:

What exactly are you expecting from Bank of Japan tomorrow? The Fed has paused; do you expect Bank of Japan to pause as well?

I think it is very unlikely that Bank of Japan may change its monetary policy this week because it has just changed its monetary policy a month ago. Now Bank of Japan is carefully watching the possible impact of the rate hike on the economy.

Bank of Japan is focussing on the impact of rate hikes on the financing condition for medium and smaller size companies. Bank of Japan is now taking a 'wait and watch' stance on interest rates. After the policy making committee meeting, Fukui may have a press conference. I think he will not give us a clear hint about his next step of the monetary policy this time.

What is your reading of the GDP signals that you are getting from US as well as data from Japan? It is expected at about 2% for Q1, do you agree with that?

I think Q2 GDP numbers for Japan will be coming out tomorrow and we expect GDP growth rate of 1.8%. It is much lower than Q1, which stood at 3.1%.

So I think the statistics may have no impact on monetary policy.

I feel Q3 numbers could be higher than Q2. The growth rate may come back to 3%. So far, we have had no problem with the domestic economy. But Bank of Japan is focussing on US economy rather than Japanese economy since Japanese economy is very sensitive to the US economic situation.

The US economic condition is a leading indicator about the Japanese economy. If US economy slows down further, Bank of Japan may be more hesitant to hike rates again. So I think for Bank of Japan, the US economic situation is more important than the current domestic situation.

Are you expecting any more rate hikes this year from Bank of Japan?

The most important statistic for Bank of Japan is the Tankan survey; its quarterly survey will be coming out in the beginning of October. If it indicates that there is a slowdown in the economy and further improvement in business sentiment, then Bank of Japan could possibly decide another rate hike in October.

I think a rate hike in this month or next month is very unlikely but there could be a rate hike in October after the Tankan survey. Another important aspect in Japan are CPI (Consumer Price Index) debtors. If CPI shows an acceleration in inflation, Bank of Japan may decide to hike rates despite a weak economic situation in the US.

So these two indicators are very important for Bank of Japan.

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