By Leika Kihara
TOKYO, March 25 (Reuters) – Many Bank of Japan policymakers saw the need to keep raising interest rates, with some calling for timely action on mounting inflationary pressures, minutes of their January meeting showed, highlighting their hawkish bias even before the Iran war boosted oil prices.
They also called for increased vigilance to the weak yen’s impact on inflation, which they saw as becoming bigger than in the past as companies more actively passed on higher import and labour costs, the minutes showed on Wednesday.
“Given that addressing rising prices was an urgent priority in Japan, the BOJ should not take too much time examining the impact of past rate hikes, and should proceed with the next rate increase without missing the appropriate timing,” one member was quoted as saying.
Another member said the BOJ should raise rates at intervals of a few months, adding that timely rate hikes were the only monetary policy prescription to curb unwelcome yen weakness that pushes up import costs, the minutes showed.
“Many members said a mechanism in which wages and prices rise moderately in tandem was becoming embedded in Japan, with this year’s wage negotiation likely to result in solid pay increases for a wide range of firms,” the minutes showed.
The remarks underscore the BOJ’s resolve to proceed with monetary tightening, with many in the board voicing confidence that higher U.S. tariffs and past rate hikes have yet to become a major drag on the economy.
The Middle East conflict, triggered by U.S.-Israeli attacks against Iran on February 28, has muddled the policy outlook with soaring oil prices adding inflationary pressures while also hampering an economy heavily reliant on fuel imports.
Having just raised rates in December, the BOJ kept its policy rate steady at 0.75% in January but retained its hawkish inflation forecasts.
Many members said underlying inflation, or price moves reflecting domestic demand that the BOJ considers key to its rate-hike timing, was approaching the central bank’s 2% target, the minutes showed.
At a subsequent meeting in March, the BOJ again kept rates unchanged while maintaining its bias for tighter monetary policy as surging oil prices risked exacerbating inflationary pressures.
Core consumer inflation stayed above the BOJ’s 2% target for nearly four years on rising raw material and labour costs before slowing to 1.6% in February due largely to generous government fuel subsidies.
With various one-off factors distorting the consumer price index, one member proposed paying more attention to gauges of underlying inflation such as the pace of wage growth and service prices, as well as inflation expectations, the minutes showed.
Several also proposed enhancing communication on how the BOJ perceives underlying inflation and Japan’s neutral rate of interest, the minutes showed. The proposals likely led to the bank’s decision in March to disclose by summer a new indicator on inflation and an updated staff estimate on the neutral rate.
While the Middle East conflict has heightened uncertainty over the economic outlook, markets still see roughly a 60% chance of a rate hike in April.
(Reporting by Leika Kihara; Editing by Tom Hogue, Shri Navaratnam and Kevin Buckland)
