(Bloomberg) -- The Bank of Japan signaled that a rate hike next month still remains on the table even as cautious views among the majority swayed the stand-pat decision at a policy meeting last week.
During a lively discussion over the timing of the next move, board members gave views both in favor of a rate increase and for waiting longer to monitor wage trends and the trajectory of the US economy under President-elect Donald Trump, according to a summary of the Dec. 18-19 meeting released Friday.
“The Bank will likely decide to raise the policy interest rate in the near future, but at this point it is necessary for the bank to be patient and monitor the uncertainties over the US economy until those uncertainties subside,” one board member said. The summary doesn’t specify which board member gave each comment.
The summary comes as BOJ watchers look for clues over the timing of the bank’s next move and the likelihood of a rate hike next month or in March.
Governor Kazuo Ueda’s recent cautious remarks have sown doubts over how quickly the central bank will hike rates. The yen slipped to a fresh five-month low overnight partly due to receding market bets for an early hike, prompting further warnings to currency speculators from Japan’s finance minister.
Several opinions on the need of a rate hike in the summary suggested that it wasn’t only Naoki Tamura, a leading hawkish member of the board, pushing for a rate hike in December. Tamura formally proposed an increase at last week’s meeting, but was voted down.
“It is necessary for the bank to adjust the degree of monetary accommodation in a preemptive manner” given the depreciation of the yen will likely help increase underlying inflation, one member said.
Another opinion also pointed to the need for a near-term move by saying that the BOJ is at a stage “where it should slightly ease off the accelerator of monetary easing, so that it can slow down when necessary while avoiding harsh braking.”
The comments contrast with Ueda’s remarks last week when the governor refrained from indicating a chance of a January hike. While the governor didn’t rule out a move next month, he stressed the need for more time and information to clarify momentum for wage hikes and uncertainties over the US economy.
“As it is necessary to confirm the progress in economic improvement at home and abroad using data, it is appropriate for the bank to maintain the current monetary policy for the time being,” one member said.
Another view said that upside price risks aren’t sufficient to require a rate hike now as import prices have been stable and yen carry trade positions have not built up excessively.
The yen weakened sharply last week after the BOJ’s stand-pat decision and hawkish signals from the Federal Reserve at the end of its own gathering. Japan’s currency reached 158.08 against the dollar overnight Thursday, the lowest level since July, dropping from as much as 153.34 the day before the BOJ’s policy decision.
Tamura’s rate hike proposal at the gathering last week was the first such suggestion since Ueda took the helm of the bank in April last year. Tamura said Japan’s economic data are in line with BOJ projections and upside price risks are rising. That view tallies with most of economists. Some 86% of them surveyed by Bloomberg said Japan’s economic conditions warranted a rate hike this month.
In a government report Friday, Tokyo inflation accelerated to 2.4% from a year earlier, pointing to ongoing inflationary strength. Japan’s nationwide key inflation indicator has stayed at or above the BOJ’s 2% target for more than two and a half years.
Overnight swaps on Friday point to a 42% chance of a January move, with bets on a hike by March reaching 72%.
One opinion in the summary alluded to Japan’s political situation as a factor the BOJ is following closely. The view noted high uncertainties over the course of discussions on tax and fiscal policy as a reason to hold policy.
Many economists say the BOJ didn’t take action this month due to concerns over political backlash as Prime Minister Shigeru Ishiba’s minority government walks a tightrope to pass a regular budget and tax reforms with opposition parties.
It’s unclear if those political clouds will be lifted in time for the BOJ’s next policy meeting on Jan. 23—24.
(Adds more details from summary)
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