By Leika Kihara
TOKYO, May 12 (Reuters) – Some Bank of Japan policymakers argued in April for raising rates soon, with one flagging the chance of a June move, highlighting a growing hawkish shift on the board as an oil shock from the Iran war sharpened pressure for near-term tightening.
While a few on the nine-member board favoured holding rates steady “for now” amid uncertainty over the Middle East conflict, many warned that rising upside risks to inflation could require imminent rate hikes, the summary of their April policy meeting showed on Tuesday.
“It is quite possible the BOJ will raise interest rates from the next meeting onward, even if the future course of the Middle East conflict remains unclear,” one board member was quoted as saying in the summary.
“While there is no need to take hasty action at this point, the BOJ should raise rates soon barring evident signs of an economic slowdown,” another opinion showed.
With the BOJ’s policy rate still distant from levels deemed neutral to the economy, the BOJ must raise rates at intervals of a few months, and accelerate the pace of hikes “without hesitation” if inflationary risks rise, a third opinion showed.
The remarks heighten the chance the BOJ will raise rates at its next policy meeting on June 15-16, and follow a recent slew of policy signals that effectively locked in a June rate hike.
The hawkish tone of the summary of opinions pushed up the benchmark 10-year Japanese government bond yield to a 29-year high in morning trade.
“The summary was hawkish overall,” with very few opinions voicing caution over future rate hikes, said Yusuke Matsuo, senior market strategist at Mizuho Securities. “We continue to project June as the most likely timing for the next rate hike.”
IRAN WAR PUTS BOJ IN A TIGHT SPOT
At the April 27-28 meeting, the BOJ kept its short-term policy rate steady at 0.75% but a hawkish split on the board underscored mounting concern over inflationary pressures from the Middle East conflict.
Three of the nine board members pushed for an interest-rate hike, a proposal that was rejected but did lead to a sharp upgrade in the bank’s inflation forecasts.
A lineup of speeches by senior officials ahead of the June policy meeting will be scrutinised for any hint that last month’s hawkish tilt is becoming policy reality.
One member urged the BOJ to refine its messaging to avoid the impression that policy shifts will always be signalled in advance, the April summary showed.
The Middle East conflict has complicated the BOJ’s task, as higher energy costs fuel inflation while simultaneously squeezing an economy heavily dependent on oil imports.
The board’s April discussion, however, focused almost entirely on the inflationary risks stemming from the conflict, the summary showed.
Many BOJ policymakers said the Iran war was intensifying inflation pressures, raising the risk of second-round effects and bringing forward the timing for underlying inflation to reach 2%, the summary showed.
One member said the BOJ should brace for a scenario in which oil prices remain elevated, while several opinions warned that high fuel costs could push up prices for a wide range of goods.
“With the outlook for prices being revised significantly upward, uncertainty regarding the situation in the Middle East remains high, and all scenarios point to further upside risks to prices,” one member was quoted as saying.
“Moreover, supply-side constraints, if they materialize, will exert extremely strong upward pressure on prices,” the member said.
The BOJ ended a decade-long, massive stimulus in 2024 and raised rates several times including in December on the view Japan was on the cusp of durably hitting its 2% inflation goal.
Governor Kazuo Ueda has signalled the bank’s readiness to continue raising rates, as rising raw-material and labour costs have kept inflation around the bank’s target for four years.
(Reporting by Leika Kihara; Editing by Tom Hogue and Shri Navaratnam)
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