BOJ debated chance of resuming rate hike, July summary shows

Some Bank of Japan policymakers warned of mounting inflationary pressures and one signaled the chance of resuming interest rate increases by year-end, a summary of opinions at the July meeting showed, keeping alive the possibility of a near-term rate hike.

While several board members warned of lingering uncertainty over the fallout from US tariffs, one welcomed Japan’s trade deal with the US as “great progress” that heightened the likelihood of achieving the BOJ’s forecast, the summary showed on Friday.

One member said the BOJ needed “at least two to three more months” to assess the impact of US tariffs, adding the impact on Japan’s economy could remain “minimal” if the US economy withstands the hit better than initially thought, it showed.

“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, another opinion showed, adding that the bank should not become overly cautious and “miss the opportunity” to hike.

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“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, a third opinion showed.

Some warned of growing inflationary risk 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.

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.

In a quarterly outlook report released after the meeting, the BOJ also spelled out explicitly for the first time the risks of persistent food price rises fanning broad-based inflation - laying the groundwork for resuming interest rate hikes.

The hawkish tilt reflected receding pessimism over US tariffs, after Japan struck a trade deal with President Donald Trump last month that lowered levies for imports of goods, including its mainstay automobiles.

A Reuters poll last month showed a majority of economists expect another rate hike by year-end. Swap rates indicate a 54 per cent chance the BOJ will raise rates to 0.75 per cent in October and a 71 per cent chance in December. REUTERS