Bank of Japan hints at more rate hikes

August 08, 2024 (MLN): Bank of Japan policymakers, in deciding a landmark increase in interest rates last month, discussed further rate hikes, a summary of the discussion showed on Thursday, prompting a hawkish shift that has contributed to global market turmoil, as reported by Reuters.

One member of the policy board said the central bank should eventually raise its policy rate to around 1% or higher, according to the summary of opinions, the first time a BOJ policymaker has specified a potential endpoint.

In the surprise move on July 31, the central bank raised its short-term policy target to 0.25%, its highest in 15 years, from a zero-to-0.1% range, and released a plan for tapering its huge asset buying in a landmark shift away from a decade-long stimulus programme.

The July increase and subsequent comments by BOJ Governor Kazuo Ueda signalling the chance of further rate hikes - along with indications that the Federal Reserve was preparing to cut U.S. rates - caused a spike in the battered yen and contributed to global market turmoil.

The nine-member board debated the risk that rising import costs and steady wage increases might push up inflation more than expected, the summary showed, highlighting a growing sense in the board that more rate hikes might be needed.

"The BOJ must proceed with further adjustment of the degree of monetary accommodation as appropriate", even after July's hike if companies continue to raise prices, wages and capital spending, one member was quoted as saying.

Those discussions, which market participants on Thursday said were more hawkish than expected, were likely behind Ueda's market-moving comments.

The ensuing rout led to remarks by BOJ Deputy Governor Shinichi Uchida on Wednesday playing down the chance of a near-term rate hike.

Finance Minister Shunichi Suzuki on Thursday declined to comment on Uchida's remarks, telling a press conference the specifics of monetary policy are for the central bank to decide.

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