As the Bank of Japan is expected to discuss whether to raise rates at its September monetary policy meeting, expectations in the market of a 0.5% rate hike are growing. However, there is still strong caution within the Bank of Japan.
Reports say the Bank of Japan is expected to consider whether to raise rates at its September policy meeting, prompting growing market expectations of a 0.5% rate hike. The expectations are said to have spread following remarks by board member Takata (高田), with the policy of proceeding while carefully assessing price trends cited as the backdrop.
However, many within the Bank of Japan are said to believe that a rate hike of that magnitude is unnecessary. Some have called for a careful assessment of the fact that prices are moving as expected and of the effects of the gradual rate hikes implemented to date. The historical backdrop to the Bank of Japan’s previous 0.5% rate hike is also discussed, helping organize the factors relevant to a decision under current conditions.
While some in the market are exploring the possibility that the Bank of Japan will decide on a 0.5% rate hike at its 17-18 September meeting, others believe it is more likely to limit the increase to around 0.25%. The aim is reportedly to secure time to assess the effects of higher borrowing costs on corporate activity and households while limiting the impact of the long period of low interest rates.
The Bank of Japan governor has emphasized caution regarding future policy, and decisions are expected to continue to take domestic and overseas conditions into account. Some market participants believe the Bank of Japan should avoid a large rate hike while factors behind yen weakness and external risks remain.