Japan signals more rate hikes if inflation keeps rising

The Bank of Japan (BOJ) remains alert to the possibility of inflation overshooting its 2% target and is prepared to raise interest rates further if economic and price conditions warrant, according to a report by Bloomberg.

BOJ Governor Kazuo Ueda said the central bank expects to continue adjusting monetary policy as underlying inflation moves closer to its 2% goal while financial conditions remain accommodative. His remarks were delivered by Deputy Governor Ryozo Himino on Wednesday, June 24, as Ueda had only resumed work a day earlier following treatment for a liver cyst infection, Bloomberg reported.

According to the report, Ueda said decisions on the timing and pace of future rate increases would depend on several factors, including the economic impact of the conflict involving Iran.
The comments echoed the BOJ’s stance from its monetary policy meeting last week, where policymakers voted 7-1 to raise the benchmark interest rate to 1%, its highest level since 1995. Bloomberg reported that officials also indicated support for additional policy tightening in a summary of opinions released on Wednesday.

Despite the widely anticipated rate increase, the Japanese yen received little support and remained close to its weakest level in nearly four decades. According to Bloomberg, currency market participants are closely monitoring developments that could prompt Japanese authorities to intervene in the foreign exchange market.

Also read: Bank of Japan raises benchmark rate to a 31-year high, Yen weakens

The BOJ has been gradually moving away from its long-standing ultra-loose monetary policy as inflationary pressures strengthen, while continuing to assess risks to economic growth and financial stability, the report said.