MNI: BOJ Vigilant Against Price Upside Risks, More Hikes Ahead
MNI (TOKYO) - Many Bank of Japan board members were concerned over the upside risks to prices and saw the need to raise the policy interest rate gradually at the Jan 23-24 meeting but they failed to offer insight into the pace or timeline, the summary of opinions showed on Monday.
“Considering that both upside and downside risks are significantly large, the Bank should be extremely careful about suggesting the pace of policy interest rate hikes and the terminal policy rate,” one member noted.
“Prices could deviate upward from the baseline scenario due to further progress in the pass-through of cost increases to consumer prices toward fiscal 2025 and to the depreciation of the yen," another member added.
"In addition, investors' expectations have increased, following a rise in asset prices including real estate. It will be necessary for the Bank to adjust the degree of monetary accommodation from the viewpoint of avoiding the yen's depreciation and the overheating of financial activities, both of which appear to be due to excessively high expectations of continued monetary easing."
The board hiked the policy rate 25 basis points to 0.5% at the January meeting, the first increase since July 2024 and its highest level since 2008. (See MNI BOJ WATCH: Ueda Flags More Hikes, No Clear Timeline)
A different member said, with economic activity and prices remaining on track, "risks to prices have become more skewed to the upside."
"It is therefore appropriate for the Bank to adjust the degree of monetary accommodation in a timely and gradual manner,” he added.
“Underlying CPI inflation has been increasing gradually toward the price stability target of 2%," another member continued. "Meanwhile, if actual CPI inflation develops in line with the Bank's outlook, it will have been clearly above 2% for four consecutive years since fiscal 2022.”
Another member said, with the BOJ's and Federal Reserve's monetary policies moving in opposite directions, "large fluctuations in the markets, particularly foreign exchange markets, have been of concern.”
“However, given the bottoming out of the U.S. economy, the Federal Reserve is expected to temporarily pause its policy interest rate cuts, and this has led to increased flexibility in the Bank of Japan's monetary policy,” the member argued.
“Real interest rates are expected to remain significantly negative after the policy interest rate hike," a separate member noted. "If economic activity and prices remain on track, it will be necessary for the Bank to continue to raise the policy interest rate accordingly, so that the negative range of real interest rates will shrink.”