BOJ must keep raising policy rate, which is considered below neutral

Bank of Japan policymakers debated the likelihood of resuming interest rate increases with one signaling the chance of a hike this year, a summary of opinions at the July meeting showed, heightening the chance of a near-term rise in borrowing costs.

- 

While several board members warned of uncertainty over the fallout from US tariffs, one welcomed Japan's trade deal with the US as “great progress” that heightened the likelihood of achieving the BOJ’s forecast, the summary showed on Friday.

Some in the board also warned of mounting inflationary pressure in a hawkish tilt underscoring a growing view within the central bank that conditions for raising Japan’s still-low rates costs could fall into place in coming months.

“The balance within the board seems to be tilting more hawkish,” which reinforces the chance of another rate hike this year, Daiwa Securities analysts wrote in a research note.

At the July 30-31 meeting, the BOJ kept rates steady at 0.5 per cent but revised up its inflation forecasts and offered a less gloomy outlook on the economy, keeping alive market expectations for a rate hike this year.

The BOJ needed “at least two to three more months” to assess the impact of US tariffs, another opinion showed, adding the impact on Japan's economy could remain “minimal” if the US economy withstands the hit better than initially thought.