ISTANBUL

Japan’s Feb. 8 snap elections will be decisive in the monetary policy decisions of the Bank of Japan (BoJ) this year, while the bank is expected to leave its rates unchanged on Friday.

The bank may signal more rate hikes at future meetings, given the weakening Japanese yen and political developments fueling inflation risks.

Policymakers appear determined to control inflationary pressures amid the yen’s recent depreciation and the expectations of wage increases.

The BoJ is expected to raise its growth estimates on Friday.

Bond markets were also under pressure following the announcement of Japanese premier Sanae Takaichi to dissolve the lower house of the Parliament on Jan. 23 for snap elections.

Concerns over how increased spending will be financed are on the rise, even though the Japanese market previously welcomed expectations of more fiscal stimulus.

Takaichi’s advocacy for fiscal expansion and the concerns of rising inflationary pressures could influence the BoJ to raise rates moving forward.

Sadi Kaymaz, an Asian markets analyst, told Anadolu that the BoJ is widely expected to keep rates unchanged on Friday.

Kaymaz stated that BoJ Governor Kazuo Ueda’s decisions will be based upon data, as factors like economic growth, inflation, and real wages will play key roles, while bank is on the lookout for changes in inflation, closely monitoring growth projections.

“Since the last meeting, there have been some new growth and inflation related developments,” he said. “These are related to Takaichi’s stimulus package and tax cut plans—plans to stimulate growth and create inflation along with it.”

“We have indeed seen this cause turmoil in the bond market—there is no doubt that these latest developments will be discussed at the monetary policy meeting, so I expect BoJ members to be eagerly awaiting how strongly Takaichi will come out from the Feb. 8 snap elections, but given the uncertainties, it is highly likely that Ueda will ‘wait and see’ at the meeting,” he added.

Kaymaz noted that the BoJ may inch closer to raising rates if it upwardly revises its growth projections, but the meeting after February may shed more light on this issue due to the election factor.

“Corporate profits are hit and unemployment is low—the economy is growing above its potential growth rate,” he said. “These could push the BoJ to raise rates.”

“Finally, it’s important that if Takaichi achieves a high approval rating in the snap elections, there is a risk of political pressure, as it is well known that she comes from former premier Shinzo Abe’s tradition and intends to pursue growth- and spending-related policies—the BoJ’s potential tightening could put the government and the bank at odds,” he added.