BOJ to Continue Considering Next Policy Rate Hike

Tokyo, April 30 (Jiji Press)–The Bank of Japan will continue to mull the timing of the next policy rate increase, after its Policy Board decided Tuesday to keep the rate unchanged for the third straight policy-setting meeting. Momentum for rate hikes has increased within the central bank, as three of the nine board members voted against maintaining the policy of guiding the unsecured overnight call rate, Japan’s benchmark short-term interbank rate, to around 0.75 pct. The three proposed raising the policy rate to around 1.0 pct. Meanwhile, there are persistent concerns that the Japanese economy may underperform the BOJ’s projections due to soaring crude oil prices. The BOJ will keep monitoring developments in the Middle East to determine when to raise rates after its latest hike last December. Maintaining Rate Hike Policy “We’ll consider the matter while closely watching the impact of the Middle East situation on the economy and prices and assessing the probability of our baseline scenario coming true as well as risk factors,” BOJ Governor Kazuo Ueda told a press conference Tuesday following the latest Policy Board meeting, indicating that the bank will maintain its rate hike approach in light of growing inflationary pressure. Ueda explained that the board opted not to raise the policy rate as the likelihood of Japan achieving the bank’s economic and price projections declined significantly. The six Policy Board members who voted in favor of keeping the rate intact recognized “no urgency that would require us to respond immediately with a rate hike,” he went on. Meanwhile, a reporter at the press conference said that the three dissenting votes, the first under Ueda’s governorship, could lead to weaker trust in the BOJ’s monetary policy. “I must take the matter seriously as chairman (of the board meeting),” he said. Concerns remain about his ability to form a consensus. Ueda said the board will assess the likelihood of the economic and price outlooks and risks when it holds its next monetary policy meeting in June. “We may decide to raise the policy rate even if the Strait of Hormuz remains effectively closed,” he added. Stagflation Worries As the Middle East turmoil appears likely to continue, supply shortages of petroleum-related products such as naphtha may grow and more manufacturers may be forced to cut production, which would deal a blow to the Japanese economy. Consumption may decline if households refrain from spending amid price hikes. In its latest quarterly Outlook for Economic Activity and Prices report, adopted Tuesday, the BOJ sharply raised its inflation forecast for fiscal 2026, which started in April, to 2.8 pct from 1.9 pct. Meanwhile, it downgraded its gross domestic product growth forecast for the year to 0.5 pct from 1.0 pct. There are growing fears of stagflation, or stagnant economic growth amid inflation. “It’s difficult to make policy decisions because the Middle East situation can’t be fully gauged, but we have no choice but to decide based on information from hearings and data collected by that time,” a senior BOJ official said. The bank needs to keep tabs on both inflationary pressure and risks to economic growth. END [Copyright The Jiji Press, Ltd.]