The Bank of Japan’s July meeting summary (post is here) revealed a wide range of views among policymakers on the timing and pace of further interest rate hikes, with members weighing persistent inflation pressures against uncertainty from trade policy and the global economy.
USD/JPY popped up a little on the release.
As a recap:
Several members suggested the BoJ is likely to continue raising rates if the economy and prices move in line with forecasts, noting that Japan’s policy rate remains below neutral.
- Some argued that hikes should proceed when opportunities arise, warning that delaying action could force rapid tightening later, potentially causing severe economic damage.
- Others called for maintaining the current accommodative environment for now, given high uncertainty over whether the bank’s economic projections will materialise.
Inflation remained a dominant theme.
- Members noted that price growth has exceeded the BoJ’s 2% target for more than three years and that inflation expectations have reached that level, with rising food and gasoline prices making households more sensitive to further increases.
- Some highlighted signs that underlying inflation is accelerating, with second-round effects taking hold, and said the bank should shift its communication focus toward actual inflation, its outlook, the output gap, and inflation expectations.
Trade and geopolitical developments also featured heavily.
- Several members warned that uncertainty surrounding trade policy remains high, particularly the potential negative impact of U.S. tariffs on Japan’s exports.
- Others stressed the need for at least two to three months to gauge the impact of U.S. tariff policy, though some said that if the U.S. economy weathers the tariff hit better than expected, downward pressure on Japan could be smaller, potentially allowing the BoJ to exit its wait-and-see stance by year-end.
- The recent Japan-U.S. trade agreement was described by one member as a “very big progress” that reduces economic uncertainty.
Global risks were mixed.
- Some members cautioned that an overshoot in global growth was possible, driven by expansionary fiscal and monetary policies in Europe, the U.S., China, and other emerging economies.
The Cabinet Office’s representative at the meeting said the Japanese economy is recovering moderately but warned of ongoing risks from continued price rises.
This article was written by Eamonn Sheridan at investinglive.com.