MNI INTERVIEW: Ex-BOJ's Kameda Sees 2% Rate By June

The Bank of Japan will aim to hike the policy rate each quarter following December’s highly likely and “indispensable” 25-basis-point increase to 1.5%, former BOJ chief economist Seisaku Kameda told MNI, noting policymakers will do what is needed to anchor underlying CPI inflation at around 2%.

The Board will likely hike again in March to 1.75% and in June to 2% should the U.S. economy and AI-related demand remain solid, before pausing to assess the impact of high borrowing costs on the economy and financial system, said Kameda, now executive economist at Sompo Institute Plus. 

Markets see an over 75% chance of a December hike, which Kameda described as needed to anchor underlying inflation. However, the Board could still elect to move at the Oct. 29-30 meeting, he warned, noting Governor Kazuo Ueda had not ruled out back-to-back hikes following September’s 25bp increase to 1.25%. (See MNI BOJ WATCH: Ueda Signals More Hikes, But Timing Unclear)

Ueda will push for an October hike if he feels the Bank is backed into a corner due to crude oil prices or U.S. dollar, yen moves, he noted. However, Kameda admitted the risk was small, as it would not be consistent with the governor's recent remarks that the Bank remains "ahead of the curve" and that it is monitoring adverse impacts on the financial environment and markets. BOJ-dated overnight index swaps have priced in a 12% chance of an October move.  

Kameda called the Bank's September move in July, noting the weak yen would prompt action. (See MNI INTERVIEW: Ex-BOJ's Kameda- Sept Or Oct Hike If Yen 165)

INFLATION CONCERNS

The Bank will focus strongly on CPI in or after October when many grocery stores raise retail prices, possibly adding pressure to medium- to long-term inflation expectations, he said, noting the September Tankan had shown the corporate inflation view three and five years ahead fall over the quarter following a drop in input prices. 

“Those inflation expectations are overshooting, and they are very crucial as underlying CPI inflation isn’t anchored at around 2%,” Kameda noted.

While the Tankan also illustrated accommodative financial conditions, it would be a mistake to describe the economy as robust and believe it could endure higher rates, he argued. 

While the BOJ is likely to maintain its median forecast for core and core-core CPI in October when the bank updates the medium-term inflation view, stronger food-price inflation than predicted in July’s outlook report could prompt an upward revision. “But the final judgement is up to the dollar/yen and crude oil prices immediately before the meeting,” he said.

LONG-TERM RATES

Kameda noted high corporate profits should insulate businesses from higher borrowing costs driven by the elevated policy rate and higher long-term yields, particularly as firms continue to transfer high costs to selling prices. 

“The rise in long-term interest rates for the past two years is explained by the outlook for rate hikes stemming from inflation in addition to QT [quantitative tightening] and overseas moves,” he said, noting the 3% 10-year JGB yield had limited impact to date. 

But market players were sensitive to worsening fiscal conditions and could push up long-term rates higher should their concerns grow. “That is a big risk,” he added. While elevated borrowing costs will not worsen the financial system considerably, it will test the fitness of Japan’s banks, he added. 

“Commercial banks are benefitting from high borrowing costs, although high rates are increasing unrealised losses in bonds,” he argued. “Looking ahead, banks will continue to raise lending rates but some banks that are extending loans to weak or poor firms will not be able to.”

MNI INTERVIEW: Services Prices Show No Sign of Slowing - ISM

The U.S. services sector is holding up amid supply chain snarls even as price pressures show no sign of easing, Institute for Supply Management services chair Steve Miller told MNI Monday. 

The ISM services index fell 0.5 percentage point in September to 54.9, slightly below market expectations. The report showed solid demand and hiring, but continued elevated prices. An index at 50 represents the dividing line between expansion and contraction.

"I'm still seeing mid- to high mid-50s. I think it'll be in the 54 to 57 range through the rest of the year. There aren't any signals here that are saying the floor is going to drop out," Miller said in an interview.

The new orders index declined 1.1 percentage point to 59.8. "Backlog is continuing to go up, so that gives you some confidence," Miller said. "Even if new orders were to drop off, the PMI will continue to see some some strength." The backlogs index rose to its highest level since July 2022.

PRICES

The prices index increased 1.4 percentage points to 74.0, the highest reading since July 2022. "The comments were almost evenly split between tariffs and oil," Miller noted.

"With oil being the number one driver, we're going to see continued elevated numbers, even for three to six months after oil prices drop, because we have it now embedded in our supply chains," Miller said.

There were 20 commodities reported up in price, two down in price, and seven reported in short supply. Miller suggested firms are having an easier time passing along costs to customers. 

"If you can charge more for it, you do. Some people are finding that out. They can charge more for it too. Even when the oil prices drop, they're not going to be giving that back without a fight," he said. 

"We have resin, plastics, and apparel. Really, every walk of life is impacted by petroleum prices, and it'll take a while for that to work out of the supply chain. You've run through all of your inventory that you bought ahead, now it's directly going into your cost of inventory." (See: MNI POLICY: Fed In No Hurry But Committed To Taming Inflation) 

Geopolitical friction was evident in this month's report as foreign demand dried up. The new export orders index plunged 9.4 percentage points due to friction with Canada, Miller said. 

HIRING 

The employment index increased 2.3 percentage points to 50.1. "It does seem like specialized hiring is continuing to have pressure, and people are calling out not specifically AI, but specialized hiring in healthcare as well as in information and management companies."

Steadier demand has caused some firms to hire, instead of relying on contractors. "How do you control costs when you're seeing steady demand, steady new orders? You go from contract to permanent because you don't have that concern about the floor dropping out anymore."

REMINDER: LIVESTREAM MNI CONNECT With ECB's Cipollone On Oct 6

You are invited to listen to a Livestreamed MNI Connect Video Conference with ECB Executive Board Member, Piero Cipollone.

Details below:

• Speaker: ECB Executive Board Member,Piero Cipollone.
• Topic of discussion: ‘Money in the Digital Age: Digital Euro, Tokenisation and the Role of Central Banks’
• Date: Tuesday 6 October from 1400-15.30 London/0900-10.30 ET/15:00-16:30 CET
• This event will be run as a Zoom Webinar and is a public, on-the-record event.

To register please go to: MNI Webcast Registration

INVITE: Livestream MNI Connect VC CBO's Phillip Swagel Oct 22

You are invited to listen to a livestreamed MNI Connect Video Conference with the Congressional Budget Office, Phillip Swagel.

Details below:

• Speaker: Phillip Swagel, Director of the Congressional Budget Office.
• Topic of discussion: ‘The U.S. Budget and Economic Outlook’
• Date: Thursday, 22nd October 2026, 10 am to 11:30 am ET / 3 pm to 4:30 pm London time.
• This event will be run as a Zoom Webinar and is a public, on-the-record event.

To register please go to: MNI Webcast Registration

MNI INTERVIEW: ECB Swap Lines Key For Global Euro

Europe must boost the international use of its currency or become more vulnerable to U.S. and Chinese monetary influences, an advisor to the EU Parliament told MNI, calling on the European Central Bank to extend swap lines to countries with which the EU wants more trade such as India.

“Being embedded in a system where the U.S. makes the rules is all well and good as long as the U.S. is an ally, but in the current situation that's just a bad choice," Jens van’t Klooster, Associate Professor of Political Economy at the University of Amsterdam, said in an interview, adding that Europe lacks a “very significant dimension of sovereignty.”

Swap lines could be key, van’t Klooster said.

"I don't think it would be so strange to say, ‘Okay, we're going to move beyond these large financial centres, the large Pan-Atlantic central banks, and also look at countries where we want to promote monetary relationships and local banking,” he said.

“If you make a trade agreement; if you revise a piece of payment legislation; if you pass financial supervision measures for large banks, in all those contexts, dollar dependence and the issue of international euro is only going to be more important.”

PAYMENT SYSTEMS

The ECB outlined its strategy for a European international payment system in March. But while there is interest in national capitals, a lack of expertise at the European Commission and a lack of institutional accountability is slowing progress, said van’t Klooster, co-author of a recent paper on building the global euro for the European Macro Policy Network think tank.

It calls on the EU to set out an internationalisation strategy, create a cross-institutional tokenisation taskforce, and track progress through the Commission's Economic and Financial Affairs Council said van't Klooster, adding that MiCar, the EU’s 2024 crypto-asset regulation framework, may also need to be revisited.

The Chinese yuan has recently surpassed the euro in key metrics such as trade invoicing, he noted. Allowing the U.S.'s promotion of stablecoin to go unchallenged would also mean even more far-reaching dollarisation, including in the EU periphery, he said. 

"If U.S. tech firms such as Meta, Google, etc., start marketing these assets, that could happen very quickly,” he said. “In a different scenario - and this is my view - there is a big crisis, comparable to a re-run of 2008. European banks would then be dependent on the dollar, and it's not hard to see how this current U.S. administration would use that for leverage.”

While the ECB has focussed on a digital euro as opposed to stablecoins, its tight holding limits designed to protect Europe’s banks from competition are a significant limitation, said van’t Klooster said.  (See MNI: Digital Euro On Track For Approval By End Of The Year)

Completing the capital markets union and creating a common EU safe asset would also help, but have become “a bit overemphasised in the debate around the internationalisation of the euro,” he said.

MNI INTERVIEW2: Higher Global Rates Could Be Structural Shift

Higher global interest rates could be a structural change as increased government borrowing and a surge in AI-led investment soak up the savings glut of the early decades of the century, the chief economist of a leading UK mortgage lender told MNI, adding that tightening financial conditions may do some of the Bank of England’s work for it.

"When it comes to the long-term interest rates, it feels like there's been a structural shift taking place," Robert Gardner of the Nationwide Building Society said in an interview.

"If you think back 20 years ago when we were talking about a global savings glut and how that was pushing down yields across the developed world," he said. 

"Now, a combination of an increase in government debt globally, which is absorbing a lot of those savings, and then we've had a huge acceleration in investment led by AI, and the net effect is that it's pushed up long-term interest rates. This has tightened financial conditions around the world as a result," Gardner said. 

CONDITIONS AID BOE

Financial markets are pricing in a rise in Bank Rate when the Bank of England’s Monetary Policy Committee meets in November, but there is debate as to how much tightening could be needed after that. (See MNI INTERVIEW: More Difficult For BOE To Look Through-Sentance )

"A lot of this rise in market interest rates has done quite a bit of financial tightening for [the BOE] already," Gardner said. 

"Clearly energy prices pose upside risks to inflation and hence interest rates. But is it’s also still possible that these increases in energy prices could ultimately bear down more on the demand side of things rather than supply, even though it's obviously going to push up headline inflation near term," he added. (see MNI POLICY: BOE's Focus On Energy Supply As It Swings To Hikes )

Given uncertainty and the lags involved in monetary policy, policymakers are in a difficult position, Gardner said, but he noted "given the experience of recent years most would probably argue, understandably,  that leaving policy too loose is likely to prove a more costly error than having policy too tight."

MNI INTERVIEW: UK Property Market Battles Headwinds

UK house price growth slowed markedly in the year to September, but an improvement in affordability should help underpin the market despite headwinds, the chief economist of one of the nation's leading mortgage lenders told MNI.

"The fact that sentiment is weak is not surprising, and that housing market activity and house price growth has slowed," the Nationwide building society's Chief Economist Robert Gardner told MNI Thursday.

"Geopolitical tensions remain high, with the conflict in the Middle East exerting upward pressure on energy prices, fanning inflation concerns. This in turn has led to mounting financial market expectations of Bank Rate increases, which has maintained upward pressure on the market interest rates which underpin mortgage pricing.”

NERVOUS

Consumers "are understandably nervous about the rise in energy prices, what that might mean for interest rates and that seems to be weighing on sentiment," Gardner said, highlighting the increased visibility of higher inflation to consumers as food and fuel prices rise. "People see it when they go to fill up their cars and in the supermarket." 

 "The hope is of course that this energy shock will soon pass. That in turn will hopefully allow market interest rates to come back down and would, in turn, allow the market to regain momentum. The problem is it's very hard to know when that's going to happen," he noted. (See MNI INTERVIEW: UK Consumer Enjoys July 'Burnham Bounce' - GfK  )

According to Nationwide data published on Thursday, September saw UK annual house price growth halve to 0.8%, the weakest since December 2025, though the average price across the UK remained close to record highs.

Gardner highlighed that underlying fundamentals remain positive.

"Credit quality remains strong, because the employment situation is still holding up well. As a result, we don't see any signs of forced selling and the sorts of things that would lead to more significant downward pressure on prices," he said

AFFORDABILITY

Gardner's preferred measure for looking at the underlying strength of the market is Nationwide's own long-run affordability series. 

"Using this measure, you can see the extent to which housing costs are stretched by historic standards, and the story has been one of a steady improvement in affordability over the last 18 months or so," he said, despite a modest retracement since the start of the U.S.-Iran conflict.

"Similarly, as a result of the same trend, the house-price-to-earnings ratio has come down to its lowest level for over a decade, and that's important because it means deposit requirements aren't as binding as they were before," he said

There has also been an improvement in credit availability in the last couple of years with household balance sheets improving.

"If you look at the total amount of household debt relative to household income, that's almost at close to 20-year lows," with households saving an "unusually large proportion of income in recent years," he said. " Household balance sheets appear solid.”