BOJ Summary Signals Chance of July Hike Amid Upside Price Risks

In a recent policy meeting, the Bank of Japan board members discussed the possibility of raising interest rates due to the increasing risks of inflation. According to a summary of opinions released in Tokyo, one board member emphasized the importance of closely monitoring relevant data and potentially raising the policy interest rate before it becomes too late. This suggests that a rate hike is still a possibility at the next meeting in July. Governor Kazuo Ueda further supported this idea by stating that a move would be possible as long as the data justifies it.
The recent policy meeting that concluded on June 14th has left markets on high alert for potential action at the next meeting in July. However, many analysts have lowered their expectations for any immediate moves, as the Bank of Japan (BOJ) has indicated its intention to unveil a detailed plan for reducing bond purchases. This has led to the belief that a rate hike is currently unfeasible.

During the meeting, one member expressed concerns about the possibility of consumer prices deviating from the baseline scenario due to recent cost increases. They suggested that the bank should consider further adjustments to monetary accommodation as a risk management measure.

Some experts who do not predict a rate hike next month argue that the BOJ’s hawkish comments are primarily aimed at providing support for the yen. The currency has remained close to the important threshold of 160, prompting currency traders to remain vigilant for potential government intervention.
The summary also included a few cautious opinions regarding the proposal to increase the interest rate from the current level of 0 to 0.1%. The contraction of Japan’s economy in the last quarter was attributed to weak consumer spending and the negative impact of an auto industry safety scandal, which temporarily halted production of certain models. Although production has resumed, another safety scandal is currently unfolding in the industry.

“Given the lack of momentum in private consumption and the consecutive unexpected suspensions of shipments at some automakers, it is appropriate for the central bank to maintain the current monetary easing policy for the time being in order to assess the effects of these factors,” one member stated.
The Bank of Japan (BOJ) announced that it will reveal its plans for reducing bond buying by the end of next month, marking its first move towards quantitative tightening. In preparation for this, the BOJ will engage in meetings with market participants in the coming month. BOJ Governor Haruhiko Kuroda has indicated that the reduction in bond buying will be significant, leading many in the market to speculate on the extent of the cuts.

During the monetary policy meeting, one member suggested that it would be more prudent to gather input from market participants before finalizing a specific plan. This approach could potentially allow the bank to implement a larger reduction in its purchases of Japanese government bonds (JGBs).