The Bank of Japan released the key views from its July Monetary Policy Meeting, revealing that several members favoured an early rate hike in light of the risk of upside surprises in prices. It also indicated that the pace of rate hikes could be faster than markets expect.
The Bank of Japan released the key views from its Monetary Policy Meeting held on 30 and 31 July. As the risk of prices rising more than expected increases, several Policy Board members reportedly expressed support for an early rate hike. Explanations following the meeting indicated a willingness to discuss the timing and pace of rate hikes flexibly.
One member noted, “Given the need to pay greater attention than before to the risk of upside surprises in prices, the pace of rate hikes could be faster than markets expect.” Another member argued that, as overseas economies enter a rate-hike phase, a flexible response is needed rather than being bound to a particular pace of rate hikes.
The meeting also reflected the view that yen depreciation and dollar strength could lead to higher import prices. Members shared the view that yen depreciation can exert both upward and downward pressure on the economy, while acting as an upward pressure factor on prices.
While the BOJ refrained from raising rates in June, it has responded to market conditions, including yen-buying intervention by Japan and the United States. Expectations are also spreading that the BOJ could face pressure to raise rates at its next meeting in September.