BOJ Eyes Raising Interest Rates to 1 Pct

Tokyo, June 2 (Jiji Press)–The Bank of Japan is seriously considering raising interest rates to 1 pct to counter upside inflation risks as the war in Iran keeps crude oil prices high. The Japanese central bank may raise the target for guiding the unsecured overnight call rate, the country’s benchmark short-term interbank rate, from the current 0.75 pct when policymakers next meet on June 15-16. This would be the BOJ’s first rate increase since December. They will carefully assess economic and price outlooks until just before the meeting, as supply chain disruptions could trigger an economic downturn. BOJ policymakers kept the policy rate unchanged at their previous April meeting, but three of the nine members voted against the decision, proposing instead to raise the rate. Even one of the policymakers who backed maintaining the rate at the April meeting, Kazuyuki Masu, signaled support for a rate increase in a speech on May 14. “If statistical data do not indicate clear signs of an economic downturn, I believe it is desirable to raise the policy rate at the earliest stage possible,” he said. Economic data has pointed to growing upside risks for inflation. The producer price index jumped 4.9 pct in April from a year earlier, signaling that elevated oil prices clearly affected business-to-business transactions and will likely impact consumer prices down the line. Prime Minister Sanae Takaichi is cautious about a possible rate increase as supply chain disruptions for petroleum products and other goods may prompt widespread production cuts. BOJ Governor Kazuo Ueda told reporters after a meeting with Takaichi on May 22 that the two had a useful exchange of views on various aspects. The BOJ may opt to postpone a rate increase to July if the fallout from the Iran war makes an economic downturn more likely. END [Copyright The Jiji Press, Ltd.]