MNI: BOJ Holds Cautious View On Future Hikes - Jan Minutes

Bank of Japan board members expressed caution at the January 23-24 meeting, which saw the policy rate increase 25 basis points to 0.50%, with gradual hikes touted as the most preferred path, the published minutes showed Tuesday.  

“Rather than raising the policy interest rate to achieve, for example, a specific neutral interest rate level, it would be necessary for the Bank to carefully adjust its monetary policy while examining the impact of the policy interest rate hike on economic activity and prices at the time of each rate hike,” one member noted. 

One member said that, with economic activity and prices remaining on track, risks to prices had become more skewed to the upside and it was therefore appropriate for the Bank to adjust the degree of monetary accommodation in a timely and gradual manner.

Another member said that prices could deviate upward from the baseline scenario due to further progress in the pass-through of cost increases to consumer prices led by domestic factors, such as wage hikes, toward fiscal 2025, and to the depreciation of the yen. In addition, investors' expectations had increased, following a rise in asset prices including real estate, the member added.

UNDERLYING INFLATION

The policymakers also discussed how to capture underlying inflation when making policy decisions in the future. (See MNI POLICY: BOJ Mulls Underlying Inflation Rework) “They shared the view the recognition that underlying CPI inflation could not be captured by a single indicator, and it was important to capture it from various perspectives and interpret the results with a degree of latitude,” the minutes showed.

“One member said that underlying CPI inflation should be assessed comprehensively. The member then commented that, in the future, it would be desirable for the Bank to clarify the role of the various indicators of underlying CPI inflation."

Members noted underlying inflation will likely increase gradually as moves to pass on higher costs, such as increased personnel expenses and distribution costs, to prices become more widespread as wages rise.

Some members also expressed concern that recent indicators of inflation expectations and other factors suggested the likelihood of underlying inflation increasing was rising.

“In addition, some members pointed out that the recent increase in the upward pressure of costs might affect underlying inflation through changes in inflation expectations,” they said.