In June, the Bank of Japan (BOJ) debated the possibility of a near-term interest rate hike, with one policymaker advocating for an increase "without too much delay" to address the risk of inflation surpassing expectations, according to a meeting summary released on Monday.
This discussion underscores the board's growing awareness of rising inflationary pressures in the world's fourth-largest economy, potentially prompting the BOJ to consider raising interest rates as early as its next policy meeting on July 30-31.
One member suggested that the recent decline in the yen could lead to an upward revision of the BOJ's inflation forecasts, implying that the appropriate policy rate might need to be higher. This was highlighted during the June 13-14 policy meeting.
"The BOJ must continue to closely monitor data leading up to the next policy meeting in July," one opinion stated, emphasizing that the risks to prices have become "more noticeable." Another opinion added, "If deemed appropriate, the BOJ should raise its policy rate without too much delay."
The central bank also needs to assess whether further rate hikes are necessary, given that inflation might exceed its forecasts if companies continue to pass on rising costs, another opinion noted.
However, some members of the nine-member board were more cautious about an imminent rate hike, stressing the need to evaluate whether rising wages would boost consumption, according to the summary.
"The risk of the BOJ raising rates in July could be higher than initially thought," wrote Ryutaro Kono, chief Japan economist at BNP Paribas (OTC), in a research note. He added that the BOJ could act next month if the yen's decline accelerates sharply.
On Monday, the benchmark 10-year Japanese government bond (JGB) yield rose to 0.995%, the highest since June 12, reflecting the BOJ's hawkish tone in the summary.
Analysts point to the BOJ's "tankan" quarterly business sentiment survey, due on July 1, and a meeting of its regional branch managers on July 8 as key factors that could influence the timing of a rate hike.
During the June meeting, the BOJ maintained short-term rates at a range of 0-0.1% but decided to announce a detailed plan next month for reducing its $5 trillion balance sheet, signaling a steady move towards normalizing monetary policy.
With inflation surpassing its 2% target for two years, the BOJ has hinted at raising short-term rates to levels that neither cool nor overheat the economy, which analysts believe to be between 1-2%.
While many market participants expect the BOJ to raise rates again this year, they are divided on whether this will happen as early as July or later.
Japan's core inflation hit 2.5% in May, up from the previous month's 2.2%, primarily due to higher energy levies.
The weak yen complicates the BOJ's policy decisions. Although it helps keep inflation above the 2% target, it also drives up the cost of imported goods, straining household budgets and hurting consumption.
The dollar briefly touched 159.62 yen on Friday, close to the 34-year low of 160.245 yen reached on April 29, which had prompted Japan to intervene in the market. The dollar stood at 159.87 yen in Asia on Monday.
"Monetary policy is conducted based on the BOJ's assessment of trend inflation and wage developments, not on short-term developments in the foreign exchange market," one opinion stated, dismissing the view held by some market participants that the bank could hike rates soon to curb the yen's decline.
Paraphrasing text from "Reuters" all rights reserved by the original author.
