Global Market: BOJ policymakers see case for faster rate hikes as inflation risks mount

Many Bank of Japan policymakers saw a growing need to focus on rising inflation risks, with some arguing that interest rates may need to increase at a faster pace, minutes of the central bank's July meeting showed on Monday, Reuters reported.

The minutes reinforced expectations that the BOJ could continue raising borrowing costs from historically low levels as underlying inflation approaches its 2% target and price pressures broaden.

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According to Reuters, several members of the nine-member policy board said the central bank was gradually shifting its policy focus toward ensuring that underlying inflation remains anchored around the 2% target, rather than supporting an environment of rising prices.

One policymaker said the pace of rate increases could be faster than market expectations for hikes at roughly six-month intervals, given that underlying inflation had moved closer to 2% and upside price risks had become more pronounced, the minutes showed.

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Another member stressed the need for the BOJ to pay close attention to upward price pressures and adjust monetary policy quickly when necessary. A third policymaker argued that the risks associated with delaying further rate increases were becoming more significant, warning that a materialisation of inflation risks could cause substantial economic damage, Reuters reported.

The comments highlight a growing debate within the BOJ over how quickly it should normalise monetary policy as inflation remains persistent and the yen stays weak.

At its July 30-31 meeting, the BOJ kept its policy rate unchanged at 1%, following a rate increase in June. The central bank also warned that underlying inflation could exceed its 2% target and indicated that future policy discussions would increasingly focus on upside risks to prices.

The BOJ subsequently raised its policy rate to 1.25% in September, taking borrowing costs to their highest level in 31 years. The move came as the Middle East conflict and a persistently weak yen pushed up the cost of imported fuel and raw materials.

The latest minutes suggest that inflation developments will remain a key consideration for the BOJ as it weighs the timing and pace of further monetary policy tightening.

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