BOJ flags risk of inflation overshoot, signals rate-hike intent
Read a summary of this article on FAST.
Get bite-sized news via a new
cards interface. Give it a try.
Click here to return to FAST
Tap here to return to FAST
FAST
TOKYO, June 19 : Bank of Japan Deputy Governor Ryozo Himino on Friday said inflation could overshoot the bank’s 2 per cent target and flagged the cost of being too late in raising interest rates, signalling resolve to continue pushing up borrowing costs.
The remarks reinforce market expectations the BOJ will raise interest rates again this year after an increase to a 31-year high of 1 per cent on Tuesday, as rising costs of imports due to a weak yen and oil due to conflict in the Middle East exacerbate pressure on prices.
Minutes of the central bank’s April meeting showed some of the nine-member board saw scope to speed up the pace of rate hikes with one calling for an increase once every few months, a sign of growing concern over inflation risk.
Wholesale inflation is accelerating at a somewhat fast pace as companies pass on rising costs from the U.S. and Israel’s war with Iran, which could lead to broader price increases, Himino said.
Guess Word
Crack the word, one row at a time
Buzzword
Create words using the given letters
Mini Sudoku
Tiny puzzle, mighty brain teaser
Mini Crossword
Small grid, big challenge
Word Search
Spot as many words as you can
“There’s a possibility underlying inflation may deviate above our 2 per cent target. A delay in responding could lead to such risks materialising, which could hurt the economy,” Himino told parliament.
The central bank would need to consider raising interest rates if supply shocks lead to broad-based price rises and risk affecting underlying inflation, Himino said.
“There is also a demand-driven aspect to recent price rises” with robust corporate profit, steady wage gain and brisk global AI-related demand underpinning growth, he said. “We will scrutinise whether these moves would broaden.”
Asked about the weak yen, Himino said the central bank was closely watching currency movement as among key factors affecting the economy and inflation.
The BOJ board next meets for a policy meeting in July, when it will also produce fresh quarterly growth and price forecasts.
BEHIND-THE-CURVE RISK
The Middle East conflict has complicated the central bank’s decision on the timing and pace of interest rate hikes, as higher energy costs fuel inflation while squeezing an economy heavily dependent on oil imports.
The U.S. said it lifted its blockade on Iran on Thursday and oil tankers sailed through the Strait of Hormuz as an interim deal to end the war took effect, though issues remain unresolved between the two countries.
Data on Friday showed the annual core inflation rate stayed below the central bank’s 2 per cent target for a fourth consecutive month in May, though analysts expect the rate to re-accelerate above 2 per cent in coming months due to rising raw material costs.
In a sign of growing attention on price pressure, the BOJ board debated the pros and cons of a near-term interest rate hike at its April meeting, the minutes showed.
“Given broadening price and wage increases, we need to be mindful of the risk of both price and wage growth overshooting,” a few members of the board were cited as saying at the meeting.
A Reuters poll, taken before the June policy meeting, showed most analysts expected the central bank to raise its policy interest rate to 1.25 per cent in the fourth quarter.
Some analysts see the chance of the bank acting sooner after it issued hawkish comments on Tuesday about the risk of inflation overshoot.
“The BOJ essentially acknowledged the risk of being behind the curve, which is quite an impressive statement highlighting its growing alarm over mounting price pressures,” said Nobuyasu Atago, a former BOJ official who is currently chief economist at Rakuten Securities Economic Research Institute.
“My base case scenario is for the BOJ to hike rates again in October. Depending on yen and inflation moves, however, there’s a chance of the BOJ hiking earlier,” he said.
Source: Reuters
Sign up for our newsletters
Get the CNA app
Stay updated with notifications for breaking news and our best stories
Get WhatsApp alerts
Join our channel for the top reads for the day on your preferred chat app
Get bite-sized news via a new
cards interface. Give it a try.
Click here to return to FAST
Tap here to return to FAST
FAST
About The Author
