A growing number of Bank of Japan policymakers have signaled a June rate hike in the summary of their April policy meeting. The board discussed raising rates soon, with one member flagging the chance of a move as early as June. An oil shock from the Iran war has sharpened pressure for near-term tightening. Consequently, a June rate hike now appears increasingly likely according to the summary released on Tuesday. While a few members favored holding rates steady for now, many warned that rising upside risks to inflation could require imminent action. One member stated that the BOJ might raise rates from the next meeting onward even if the Middle East conflict remains unclear.
Another opinion emphasized that the BOJ should raise rates soon barring evident signs of an economic slowdown. A third member urged the bank to raise rates at intervals of a few months. It should accelerate the pace of hikes without hesitation if inflationary risks rise. Therefore, these remarks heighten the chance of a June rate hike at the next policy meeting on June 15-16. The hawkish tone of the summary pushed the benchmark 10-year Japanese government bond yield to a 29-year high in morning trade. Yusuke Matsuo, senior market strategist at Mizuho Securities, noted that the summary was hawkish overall. He continues to project June as the most likely timing for the next rate hike, a clear vote for a June rate hike.
At the April 27-28 meeting, the BOJ kept its short-term policy rate steady at 0.75 percent. However, a hawkish split on the board underscored mounting concern over inflationary pressures from the Middle East conflict. Three of the nine board members actually pushed for an interest-rate hike. Their proposal failed but led to a sharp upgrade in the bank’s inflation forecasts. The Middle East conflict has complicated the BOJ’s task significantly. Higher energy costs fuel inflation while simultaneously squeezing Japan’s oil-dependent economy. Nevertheless, the board’s April discussion focused almost entirely on inflationary risks stemming from the conflict.
Many policymakers warned that the Iran war intensifies inflation pressures and raises second-round effects. This could bring forward the timing for underlying inflation to reach 2 percent. One member said the BOJ should brace for a scenario with persistently high oil prices. Several opinions warned that high fuel costs could push up prices for a wide range of goods. Supply-side constraints, if they materialize, would exert extremely strong upward pressure on prices. Governor Kazuo Ueda has signaled the bank’s readiness to continue raising rates. Rising raw-material and labor costs have kept inflation around the bank’s target for four years. Looking ahead, all signs point to a June rate hike unless the economy shows sudden weakness.
