MNI: BOJ Board Split On Rate Hike; U.S. Concerns - Opinions

Bank of Japan board members were mixed over the next rate hike on the back of improved underlying inflation and the downside risk to the U.S. economy at the March 18-19 meeting, the summary of opinions released Friday showed.

“During the phase of the next policy interest rate hike, underlying CPI inflation may be fairly close to the 2% price stability target," one member noted. "Therefore, the Bank will need to consider options including a shift from its current accommodative monetary policy stance to a neutral one.”

Another member said, given the rise in asset prices has led to an increase in the expected rate of return, it is possible market participants consider real-interest rates to be lower than the levels obtained using the CPI, "which may have further strengthened the effects of monetary easing.”

“It will be necessary for the Bank to make nimble adjustments to the degree of monetary accommodation from the viewpoint of avoiding the overheating of financial activities, which appears to be due to excessively high expectations of continued monetary easing,” the member added.

A different member said the board will need to carefully examine firms' and households' inflation expectations, the upside risks to prices, and wage hikes at the next April 30-May 1 meeting.

DOWNSIDE RISKS

“Downside risks stemming from the U.S. have rapidly heightened recently and, depending on how tariff-related issues develop, it is quite possible that these risks will even have a negative impact on Japan's real economy," another member noted. "In that case, the Bank will need to be particularly cautious when considering the timing for raising the policy interest rate."

A different member said not enough data was avail, able to examine fully the effects of policy rate changes to date, or the recent fluctuations in long-term interest rates. "It will take time for these effects to be fully transmitted to economic activity and for the Bank to examine these effects,” the member added.

Some board members voiced concern over the outlook for the U.S. economy, with one noting the new administration's policies will impact business and household sentiment around the world. 

A different member said the heightened uncertainties regarding the global economy triggered by U.S. policy can be pointed out as a "change in risks to the outlook since the previous [monetary policy meeting].”