MNI INTERVIEW: Ex-BOJ's Momma Sees Small Wage Risk, 2% Rate

The Bank of Japan will increase the pace of rate hikes in 2027 should wages and inflation strengthen, but stable conditions will see the Board likely stick to quarterly 25-basis-point rate hikes following December’s highly anticipated increase to 1.5%, former BOJ executive director and chief economist Kazuo Momma told MNI.

“If it happens, the BOJ will need to increase the number of rate hikes, which will send the policy rate to 2.25% or 2.5%, or 3% according to circumstances, to push down inflation,” Momma said, pointing to an unlikely scenario where wages grow between 5.5-6%, above the circa 5% experienced over the last three years. Such moves would indicate stronger underlying CPI inflation above 2%, he argued. 

“The change of the policy phase in June resulted in the rate hike in September, meaning that the BOJ has set the pace of rate hikes to once per three months,” Momma said. While predicting the Bank’s hiking pace after March was difficult as prices and the economy shift, a June or July increase to 2% remains likely, he continued, slightly faster than the market's September 2027 expectation. 

Momma accurately called the September hike in August and warned the BOJ could move again as soon as December. (See MNI INTERVIEW: Ex-BOJ Momma Sees More Hikes After Sept In 2026)

While the Bank had not declared it had achieved 2% inflation, Governor Kazuo Ueda’s remarks following the September hike suggested it had shifted to a policy stance aimed at stabilising price growth around the target, he argued. (See MNI POLICY: December BOJ Hike In View After September Tankan) 

“Ueda’s remarks mean that the bank is getting rid of easy policy. While the BOJ unofficially changed the policy phase in June, the bank didn’t declare it at that time as the bank needed to confirm CPI moves.”

The BOJ's communications will emphasise a continued need to ensure inflation has stabilised around 2%, he added, noting this would entail inflation stably moving around the target for a certain period. 

The recent rise in crude-oil prices – higher than July’s forecasts – will also allow the Bank to revise its median core CPI outlook this fiscal year from 2.4% when it updates its Outlook Report following the Oct 29-30 meeting, despite the latest CPI and September Tokyo inflation results landing largely within the BOJ’s predictions, he added. 

CORPORATE EXPECTATIONS

The September Tankan showed corporate inflation expectations five years ahead had largely stabilised at 2.5%, down 10bp, while the three-year result held steady at 2.6%.

While stable, Momma noted the levels were still elevated. “If the view moves toward 3%, the BOJ will increase its guard against higher underlying CPI inflation,” Momma argued, noting the Bank had concluded the data failed to show upward price pressure among business-to-business transactions had impacted consumer prices. 

STAGFLATION RISKS

A combination of slower growth and stronger prices would challenge the Bank’s strategy, Momma warned. “Should financial conditions be not accommodative, the risk to economy and prices change,” he said, noting this could weaken price pressures. 

“But the worsening in the Middle East situation will put upward pressure on crude-oil prices and then increase the upside risk to prices. That’s a very difficult case for the BOJ to manage monetary policy, although I don’t know how the BOJ would do.”

MNI INTERVIEW: Ex RBA Economist Sees High Bar For Further Hike

The Reserve Bank of Australia is likely to hold the cash rate at 4.6% this year, unless third-quarter trimmed-mean inflation prints higher than 1% month on month, former RBA economist Justin Fabo told MNI, adding that last week’s 25-basis-point hike was a preemptive move ahead of expected stronger price rises. 

“If we had a 1.1% [m/m Q3] trimmed mean, that would be above anyone's nowcast that I've seen and it would be above [the RBA]’s statement forecast,” said Fabo, founder of Antipodean Macro and the RBA’s former head of international financial markets. This means there is a lower probability the Bank will need a further rate hike this year, he said.

Should Q3 trimmed mean due Oct 28 print at 1% m/m, though also a strong result, the Bank would be likely to justify a pause by pointing to September’s 25bp hike to 4.6% as preemptive, he added. (See MNI RBA WATCH: Bullock Says Will Hike More If Needed) 

Governor Michele Bullock’s comments at last week’s post-meeting press conference had already acknowledged Q3 inflation would likely land higher than its August forecast, Fabo noted, which drove the market’s dovish reaction. 

While Bullock and the Board aimed to convey a "finger-on-the-trigger" mentality, they would take a softer, data-driven approach, he continued. "November, with a full forecast update, and probably a pretty strong Q3 inflation number, I think a 30% chance is right," he said, highlighting market pricing for the Nov. 3 meeting. 

"It's probably roughly the right reaction from markets to be not sure that they'll need to go again before the end of the year." RBA overnight index swaps currently assign an 18% chance for a hike at the December meeting. 

LABOUR & INFLATION

Fabo said the RBA would also keenly watch the labour market, housing and services inflation to judge whether a further hike was justified, and warned against reading too much into August's monthly inflation results. 

"You've got to be wary about some of that volatility in those numbers, but there's still there's still a lot of information in the 87 categories when you pull it all apart," he noted, adding that August's results pointed to stronger Q3 trimmed mean despite the 0.2% m/m growth. 

The next unemployment read – due Oct 15 – will also either confirm the prior month's deterioration to 4.6% was an outlier, or show further weakness, which will make additional hikes more problematic, he argued. However, he warned official and private job ad data were mixed, pointing to the recent ANZ-Indeed Australian Job Ads result, which posted a further 2.2% m/m rise in September, leaving the series 12.9% higher over the year. (See chart) 

The RBA will need more information to make an informed judgement on the labour market, he added. "It's not always just about one number and certain thresholds. A 1% trimmed mean would be uncomfortable, but I'm not convinced at the moment it would tip them over the edge."

High frequency price data alongside confidence indicators also look weak, he added, noting, however, that inflation could still be feeding into the real economy with a lag. "The question is just how big that flow and effect is going to be," he said, noting this concern could fuel a softer approach among board members. "But the problem is that the hard data on inflation, which is the last thing to move, is still looking really uncomfortable."

Fabo in August predicted September's hike, saying that the RBA would want to front load increases ahead of higher inflation. (See MNI INTERVIEW: September Hike Possible - Ex RBA's Fabo)

HOUSING MARKET

Housing market weakness could also translate to lower construction costs as builders cut prices to increase demand despite rising overheads, he argued, noting housing was highly correlated to trimmed-mean inflation, while advertised rents had also appeared to stabilise.    

"If that, combined with the weaker housing [market], starts to roll over a bit, that can give the board some confidence at least that they don't need to do anything with rates," he added. "It's still mixed on inflation, but the housing stuff is getting a bit more interesting again."

INVITE: MNI Connect Livestream 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: EU Hopes Rise Of Chinese Concessions In Trade Talks

European Commission officials are increasingly optimistic they can win a commitment from China on market access for European products, as well as more investment into Europe, ahead of a key meeting between Trade Commissioner Maros Sefcovic and China’s Commerce Secretary Wang Wentao in Beijing on Thursday, officials told MNI.

China appears to be backing away from its previously firmly-held line that its export success was just that of a strong market-based competitor, and moving towards a more conciliatory approach as European states weigh deploying tariffs and other measures to protect their industry against a flood of imports, the officials said.

Officials gave no details as to what products could win greater access to China’s market, or whether they would be goods or services. Beijing could also commit to investment into strategic sectors key to Europe's reindustrialisation strategy, such as solar panels, semiconductors and other clean tech sectors, they said.

The release of the Franco-German non-paper on proposals to reinforce the EU's trade defence tools earlier this week - as reported by MNI last week - has boosted hopes that the EU can take a tougher line in other policy areas, including on the Industrial Accelerator Act and its provisions for a 'Made in Europe' criterion for government procurement. (See MNI: Germany, France To Moot Tougher Trade Options Vs China)

The mood has shifted among European states, with the mainstream now agreeing that something has to be done to counter China's export surge, sources said. 

"China needs to show that it is doing something about the disparity," one said. 

SPANISH HOLDOUT

Spain remains a big holdout to adopting a much tougher line against China. However, while sources said it seems unlikely that the country would soften its stance with general elections just a month away, opinion polls suggest that Socialist Prime Minister Pedro Sanchez is likely to be replaced by a more China-sceptical right-wing government. While Slovakia is also an opponent for the moment, it appears open to suasion, the sources said.

Thursday’s meeting between Sefcovic and Wang has been flagged as a potentially key moment as Brussels seeks to find ways of stemming the flow of imports while hopefully avoiding an all-out trade war. (See MNI: EU Aims To Reduce China-Dependence, Avoid Trade War)

The sources’ comments came after the Commission's DGTRADE Chief Ditte Jorgensen briefed EU ambassadors on Tuesday on her recent visits to Beijing as well as to the U.S. 

Concerns are also rising among EU officials that a poor performance by President Donald Trump in the November mid-terms could prompt tougher U.S. action against Chinese imports and expose Europe to a new wave of diverted exports from the country.

FINAL REMINDER: LIVESTREAM MNI CONNECT:ECB Cipollone At 0900ET

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

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."