BOJ debated chances of resuming rate hikes, July summary shows

CNA

a day ago

TOKYO :Bank of Japan policymakers debated the likelihood of resuming interest rate increases with one signaling the chance of a hike this year, a summary of opinions at the July meeting showed, highlighting receding pessimism over the impact of U.S. tariffs.
Some in the board also warned of mounting inflationary pressure in a hawkish tilt underscoring a growing view within the central bank that conditions for raising Japan's still-low borrowing costs could fall into place in coming months.
At the July 30-31 meeting, the BOJ kept rates steady at 0.5 per cent but revised up its inflation forecasts and offered a less gloomy outlook on the economy than three months ago, keeping alive market expectations for a rate hike this year.
While several board members warned of lingering uncertainty over the fallout from U.S. tariffs, one welcomed Japan's trade deal with the U.S. as "great progress" that heightened the likelihood of achieving the BOJ's forecast, the summary showed on Friday.
The BOJ needed "at least two to three more months" to assess the impact of U.S. tariffs, another opinion showed, adding the impact on Japan's economy could remain "minimal" if the U.S. economy withstands the hit better than initially thought.
"In that case, it may be possible for the Bank to exit from its current wait-and-see stance, perhaps as early as the end of this year," the member, whose identity was not disclosed, was quoted as saying.
A few others in the nine-member board also signaled the possibility of resuming interest rate hikes.
The BOJ must continue to raise rates when possible because its policy rate, at 0.5 per cent, is below levels considered neutral to the economy, one opinion showed, adding that the bank should not become overly cautious and "miss the opportunity" to hike.
"It's important to raise rates in a timely manner" to avoid being forced to hike rapidly later and inflict huge damage to the economy, another opinion showed.
Some warned of growing inflationary risks, with one opinion saying the BOJ is "now at a phase where it needs to place more emphasis on the upside risks to prices", the summary showed.
"Inflation expectations seem to have reached 2 per cent and there's concern they will rise further," another opinion showed. The member added that compared with April, there was a bigger chance Japan will durably hit the BOJ's price target in the first half of the three-year projection through fiscal 2027.
The caution over inflation risks was in line with a quarterly outlook report released after the July meeting, where the BOJ spelled out explicitly for the first time the risks of persistent food price rises fanning broad-based inflation.
The hawkish views contrast with the focus on downside growth risks in the BOJ's previous report on May 1, released in the wake of Trump's April announcement of sweeping U.S. tariffs that stoked fears of global recession.
The change in tone underscores the BOJ's growing confidence over Japan's economic recovery thanks to Tokyo's trade deal with Washington last month, which would lower levies for imports of goods, including its mainstay automobiles.