Iran peace deal won't change BOJ's rate-hike plans, ex-central bank economist says

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TOKYO, June 15 : A peace agreement between the United States and Iran likely won't change the Bank of Japan's expected move to deliver two interest rate hikes this year, the central bank's former top economist Seisaku Kameda said on Monday.

With price pressures on the rise, the BOJ is set to proceed with a much anticipated increase in its short-term policy rate to 1 per cent from 0.75 per cent on Tuesday, which was likely a move initially projected for April were it not for the Middle East war, Kameda told Reuters in an interview.

U.S. and Iran said they had agreed on a framework to end their war, halt the U.S. blockade of Iran and reopen the Strait of Hormuz, a preliminary pact that sent oil prices falling.

If a peace agreement leads to a smooth re-opening of the strait, it may take some pressure off the BOJ to escalate its efforts to tame inflation through faster-than-expected rate hikes, he said.

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"But it won't change the BOJ's plan to push up still low real borrowing costs and normalise monetary policy by raising its policy rate at a pace of about twice a year," said Kameda, who remains in close contact with incumbent policymakers.

After a June rate hike, the BOJ is likely to raise rates again in October or December, he added. After the June meeting, the BOJ holds policy meetings in July then in September.

The BOJ 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 spillover price pressures from the Iran war-induced energy shock.

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.

Deputy Governor Shinichi Uchida will hold a press briefing on June 16 after the two-day meeting, which Governor Kazuo Ueda will miss as he is being treated in hospital for an infected liver cyst.

Uchida is likely to reiterate the BOJ's resolve to continue raising interest rates, but avoid giving explicit hints on the next rate-hike timing given lingering uncertainty over the Middle East, 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," he added.

Kameda, who was involved in drafting the BOJ's forecasts from 2020 to 2022, is now executive economist at Japan's Sompo Institute Plus.

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