Global Market: BOJ policymakers see scope for faster rate hikes as inflation pressure builds

Bank of Japan policymakers saw a need to raise interest rates more quickly or move borrowing costs closer to the central bank’s desired level relatively soon, according to a summary of opinions from its September policy meeting released on Thursday, Reuters reported.

The summary indicated that most policymakers supported further interest rate increases following the BOJ’s September rate hike, as persistent inflationary pressures raise concerns about price growth moving above the central bank’s 2% target.

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According to Reuters, one policymaker said the BOJ may need to accelerate rate hikes if signs emerge that inflation is deviating upward from expectations. Another opinion suggested that bringing the policy rate closer to its approximate neutral or desired level relatively soon would give the central bank greater flexibility to respond to unexpected economic developments.

Several policymakers also said underlying inflation had already reached, or was approaching, the BOJ’s 2% target, reinforcing expectations that monetary policy could be tightened further.

At the same time, some policymakers argued that the central bank did not need to act hastily. However, they said rates should eventually be raised to prevent excessive and prolonged price increases, with underlying inflation expected to reach the 2% target before long, Reuters reported.

The comments highlight a growing debate within the BOJ over the appropriate pace of policy normalisation as Japan moves further away from years of ultra-loose monetary policy.

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At its September meeting, the BOJ raised its policy interest rate to a 31-year high. Governor Kazuo Ueda also signalled that the central bank had entered a new phase in which policymakers would pay closer attention to the risk of inflation overshooting its target.

The shift has kept the prospect of additional rate increases on the table, although the timing and pace of future moves will depend on developments in inflation, wages and economic activity.

The BOJ is also closely monitoring external risks, including global interest rates, currency movements and energy prices, which could influence Japan’s inflation outlook and the economy’s trajectory.

(Disclaimer: This article is based on inputs from agencies. These do not represent the views of The Economic Times)