BoJ raises possibility of faster rate rises

The Bank of Japan raised the possibility of faster than expected interest rate rises in the summary of opinions of its Monetary Policy Committee on Wednesday.

If the yen continues to be weak, raising import prices, there is a risk that underlying inflation will exceed the BoJ’s forecasts, a number of MPC members said in edited comments of its late April meeting.

“There is a possibility that the future policy interest rate will be higher than the path that is factored in by the market,” one member said.

The document is an edited summary of the MPC member’s opinions. These broadly showed reasonable confidence that the current economic outcomes were as expected alongside concerns about the risks of yen weakness in future.

If anything, the Committee’s assessment of current conditions was dovish with members noting disappointing private consumption, business investment and some concerns that rapid wage rises in large companies might not be spreading to smaller firms.

This dovish near-term outlook, which suggests there is no urgency to tighten monetary policy quickly. Many members expressed the need to maintain accommodative monetary policy for the time being.

The BoJ raised its interest rate from -0.1 per cent to a range of between 0 and 0.1 per cent in March.

But the opinions also showed that the committee was alert to risks of higher consumer prices arising over the summer as a result of yen weakness.

The consensus on the committee appeared to favour further action to raise interest rates gradually with some members expressing a possible need for more rapid action.

The committee is also considering limiting its continued purchases of assets, following the smooth exit from yield curve control this year.

Japanese data over the summer will be an important determinant of the speed of interest rate rises this year.