BOJ board members discuss a potential rate increase as inflation risks rise, keeping markets on alert
Bank of Japan board members have discussed the possibility of an interest rate hike as upside risks to inflation become “more noticeable,” according to a summary of opinions from the June policy meeting reported by BNN Bloomberg.
“It is necessary for the bank to continue to closely monitor relevant data in preparation for the next monetary policy meeting,” one of nine board members said, according to the summary released Monday in Tokyo.
“If deemed appropriate, the bank should raise the policy interest rate before it’s too late.”
The summary suggests a rate hike isn’t off the table when officials next gather July 30-31. Governor Kazuo Ueda used relatively strong words to convey the same idea when questioned about whether a move would be possible, saying, “Of course” as long as data warrant it.
The summary from the policy meeting that ended on June 14 will likely keep markets on alert for possible action at next month’s meeting.
However, many BOJ watchers have trimmed their expectations for a move at that time, noting that the bank’s pledge to unveil a detailed plan for reducing bond purchases makes a rate hike unfeasible.
“There is a possibility that prices will deviate upward from the baseline scenario if another pass-through of recent cost increases to consumer prices occurs,” one member said.
“It is therefore necessary for the bank to consider further adjustments to monetary accommodation from the perspective of risk management.”
Some of those who don’t forecast a rate move next month contend that the BOJ’s hawkish comments are aimed at merely supporting the yen. The currency stayed near a key threshold of 160 Monday morning, keeping currency traders on guard for potential government intervention.
The summary also reflected a few cautious opinions about the idea of raising the rate from the current settings of 0 to 0.1 percent. Japan’s economy contracted last quarter due to weak consumer spending and the drag from an auto industry safety scandal that temporarily halted output of some models.
While that output has been restored, a new safety scandal in the industry is currently unfolding.
“While private consumption lacks momentum, there have been successive unexpected suspensions of shipments at some automakers,” one member said. “As the bank needs to assess the effects of these factors, it is appropriate that it continue with the current monetary easing for the time being.”
The BOJ said it will specify plans at the end of next month for cutting bond buying in its first step toward quantitative tightening. It will hold meetings with market participants next month. Ueda has said the reduction will be “sizable,” prompting many in the market to speculate on the likely size of the cuts.
“It is better not to decide on a specific plan at this monetary policy meeting but to collect views from market participants before making a decision, as that might allow the bank to conduct a bigger reduction in its purchase amount of JGBs,” one member said, referring to Japanese government bonds.
