Bank of Japan set to raise rates to 31-year high, vow further increases
· CNA · JoinRead a summary of this article on FAST.
Get bite-sized news via a new
cards interface. Give it a try.
Click here to return to FAST Tap here to return to FAST
FAST
TOKYO, June 16 : The Bank of Japan is set to raise interest rates to a 31-year high on Tuesday, marking another landmark step in normalising monetary policy as it focuses on taming price pressures from the energy shock caused by the Iran war.
The decision would mark a more aggressive approach by the BOJ in dismantling the remnants of the radical stimulus of Governor Kazuo Ueda's predecessor and another step in becoming a more conventional central bank that prioritises fighting inflation.
All eyes will be on how the peace deal between the U.S. and Iran, which could ease global inflationary pressures, affects the BOJ's communication on the pace and timing of further interest rate hikes.
Deputy Governor Shinichi Uchida will hold a press briefing after the meeting, which Ueda will miss for a two-week treatment in hospital for an infected liver cyst. Ueda will not vote, leaving the decision in the hands of eight board members - seen mostly in favour of a rate hike.
CNA Games
Guess Word
Crack the word, one row at a time
Buzzword
Create words using the given letters
Mini Sudoku
Tiny puzzle, mighty brain teaser
Mini Crossword
Small grid, big challenge
Word Search
Spot as many words as you can
Show More
Show Less
Uchida is likely to reiterate the BOJ's resolve to continue raising rates, but avoid giving explicit hints on the next rate-hike timing given lingering uncertainty over the Middle East, the central bank's former top economist Seisaku Kameda said.
"Uchida is good at communicating with constructive ambiguity. With so much uncertainty over the outlook, he will signal the BOJ's readiness to respond nimbly," Kameda said, predicting a hike in June and then another in October-December.
WEAK YEN PRESSURE
At the two-day meeting ending on Tuesday, the BOJ is widely expected to raise its short-term policy rate to 1 per cent from 0.75 per cent, taking borrowing costs to levels unseen since 1995.
The hike would be the first since December and align the BOJ with other central banks shifting towards tighter policy to combat inflation, including the European Central Bank.
The Middle East conflict has complicated the BOJ's policy path by adding inflationary pressure through higher oil costs, while hurting an economy heavily reliant on imported fuel.
The BOJ kept policy steady at its previous meeting in April but sharply revised up its price forecasts and stressed its vigilance to the risk of an inflation overshoot. Three of its nine board members proposed a hike to 1 per cent.
A flurry of hawkish BOJ signals since then have led markets to almost fully price in the chance of a June rate increase. A Reuters poll showed economists projecting the BOJ to raise rates to 1.25 per cent in the fourth quarter after a hike in June to 1 per cent.
While government subsidies have kept core consumer inflation below the BOJ's 2 per cent target, analysts expect price pressures to broaden with wholesale inflation spiking to a 3-year high of 6.3 per cent in May.
A weak yen, which pushes up import prices and broader inflation, will also keep the BOJ under pressure to stay on course for further rate hikes, analysts say.
Newsletter
Week in Review
Subscribe to our Chief Editor’s Week in Review
Our chief editor shares analysis and picks of the week's biggest news every Saturday.
Sign up for our newsletters
Get our pick of top stories and thought-provoking articles in your inbox
Get the CNA app
Stay updated with notifications for breaking news and our best stories
Get WhatsApp alerts
Join our channel for the top reads for the day on your preferred chat app