The firm revises their call following the LDP leadership election result, which saw fiscal dove Sanae Takaichi claim victory. Société Générale cites that as well as US government shutdown risks as being the main reasons for the change in the call.
They argue that while Takaichi has withdrawn her proposal to cut consumption tax, her overall fiscal stance will remain much more expansionary as compared to Ishiba’s administration. That being said, increased pressure towards the Japanese yen currency could end up indirectly bolstering the case for a rate hike.
Looking to October, Société Générale sees the potential for three policymakers to dissent in favour of a rate hike. But in the bigger picture, Japan’s inflation outlook and rising wage pressures should eventually justify a rate hike at some point although US economic risks and global risk aversion might keep the BOJ sidelined still.
As such, the firm’s base case now is for a rate hike in December instead but wouldn’t rule out a chance of it being delayed further to January.
