Bank of Japan minutes from April revealed some members advocated for faster rate hikes due to inflation risks, particularly if the Middle East conflict worsened. Deputy Governor Ryozo Himino confirmed the bank will continue raising rates.
The discussions within the Bank of Japan highlight ongoing internal debate about the pace of monetary tightening amidst persistent inflation risks and geopolitical uncertainty, potentially influencing future rate decisions and market expectations.
Minutes from the Bank of Japan's April meeting revealed that some board members advocated for accelerated interest rate hikes to combat inflation risks, particularly if the Middle East conflict escalated. Three of the nine board members proposed raising the policy rate to 1% at that meeting, though the proposal was unsuccessful. The central bank subsequently raised its policy rate to 1% in June.
Former board member Makoto Sakurai stated in an interview that the Bank of Japan may raise interest rates twice by the end of the current fiscal year, shifting its focus toward mounting inflation risk. He indicated that another hike by year-end is likely, with the BOJ potentially raising rates in October or December, depending on inflation data. Sakurai expects the central bank to raise its policy interest rate to around 2% by early 2028.
Sakurai noted that while the conflict in the Middle East complicates rate hike decisions by fueling inflation and squeezing the economy, the BOJ will likely maintain its focus on combating inflation due to strong corporate profits and a tight labor market. He also commented on Prime Minister Sanae Takaichi's expansionary fiscal policy, funded by debt issuance, which he believes works against the BOJ's inflation-fighting efforts and contributes to the weak yen.
Bank of Japan Governor Kazuo Ueda was discharged from hospital on Friday after two weeks of treatment for an infected liver cyst. He missed the BOJ's policy meeting on Tuesday, when the central bank raised interest rates to a 31-year high. Ueda is expected to return to the office on Tuesday and continue treatment for about two weeks.