By Leika Kihara
TOKYO, Oct 1 (Reuters) – Some Bank of Japan policymakers saw the need to accelerate the pace of interest rate rises or bring them closer to the central bank’s “goal” soon, a summary of opinions at its September meeting showed, heightening the chance of further rate hikes.
Most of the opinions cited the need to follow September’s rate hike with further increases in borrowing costs as inflationary pressure mounts.
“If signs of an upward deviation in prices are observed, the Bank will need to accelerate the pace of rate hikes,” one member was quoted as saying.
“It is desirable for the Bank to bring the policy interest rate closer to the approximate goal relatively soon” to allow it scope to respond to unexpected developments in the economy, another opinion showed.
The opinions highlight the board’s growing focus on inflation risks, reinforcing dominant market views of another rate hike this year.
“Taking into account most recent developments, we must consider the outlook for prices keeping in mind that crude oil prices could remain high,” one member said, signalling alarm over the impact of the simmering Middle East conflict.
At its September meet, the BOJ raised interest rates to a 31-year high of 1.25%, with the central bank’s governor signalling a new phase focused on keeping inflation from overshooting its target, opening the door to further rate hikes.
Several opinions pointed out that underlying inflation had reached, or was close to hitting, the BOJ’s target of 2%.
One said while the BOJ did not need to take hasty action, it should raise rates to prevent excessive and persistent price rises with underlying inflation seen reaching 2% before long.
Many analysts expect the BOJ to raise rates again in October or December.
Receding prospects of a U.S. rate increase, due to softer-than-expected inflation data, may take some pressure off the BOJ to hike this month to avoid unwelcome yen falls that boost import costs.
Still, the BOJ faces greater pressure to raise rates than other central banks, as its policy rate remains near the bottom of the estimated 1.1% to 2.5% range of Japan’s nominal neutral rate, or the level that neither cools nor overheats growth.
“The Bank should continue to act in a timely manner without becoming overly cautious” in raising rates, given significant upside price risks, one member said, adding that the bank should enhance analysis of its neutral rate estimate.
The dollar rose to about 157.87 per yen after the summary was released as investors reduced bets that the BOJ could deliver a back-to-back hike in October.
HEADWIND TO HIKES
Not all, however, saw conditions fall in pace for rate hikes. Two doves in the nine-member board, Toichiro Asada and Ayano Sato, dissented from September’s rate-hike decision.
The summary included some opinions, probably from them, warning of lacklustre consumption and subdued growth in services inflation as reasons to stand pat on policy.
A Cabinet Office representative at the meeting also urged the BOJ to “examine carefully the cumulative effects of past interest rate hikes,” the summary showed, a sign of concern over the potential hit to the economy from higher rates.
“Looking ahead, it may be necessary for the Bank to take into consideration its estimates of the neutral rate,” the representative was quoted as saying, urging caution in further hikes.
While the summary does not disclose the identities of commenting participants, Economy Minister Minoru Kiuchi represented the cabinet office at the September event.
Kiuchi is seen as a reflationist aide of premier Sanae Takaichi, herself viewed as cautious about BOJ rate hikes that could push up the cost of funding her ambitious spending plans.
(Reporting by Leika Kihara; Editing by Christopher Cushing and Clarence Fernandez)
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