Bank of Japan July Meeting Minutes: Rate Hikes May Resume by Year-End
The Bank of Japan hinted in the minutes of its July meeting that it may restart interest rate hikes by the end of the year due to the impact of U.S. tariffs. Committee members stated that it would take two to three months to assess the impact of the tariffs, and if the U.S. economy performs better than expected, it would mitigate the damage to the Japanese economy. Although the Bank of Japan maintained the benchmark interest rate at 0.5%, committee members had differing views on the intensity of inflation, which continues to hover around the 2% target level, indicating that future policies need to focus on the risks of rising prices
According to the Zhitong Finance APP, the summary of opinions from the Bank of Japan's monetary policy meeting in July, released on Friday, indicates that one committee member suggested that, in light of the impact of U.S. tariffs, the Bank of Japan may raise interest rates again by the end of this year.
The committee member stated that it would take at least two to three months to assess the impact of the tariffs, but if the U.S. economy can withstand the effects of its tariff policy better than expected, it would also help mitigate the damage to the Japanese economy.
According to the summary released on Friday, the committee member said, "In this case, the Bank of Japan may be able to change its current wait-and-see attitude and may even take action by the end of this year." The summary did not specify which committee member made the statement.
The Bank of Japan maintained the benchmark interest rate at 0.5% on July 31, in line with market expectations, while raising its price forecasts and downplaying uncertainties related to the global trade landscape. In a press conference following the interest rate decision, Bank of Japan Governor Kazuo Ueda lowered market expectations for a near-term rate hike.
One committee member stated that even if Japan and the U.S. reach a trade agreement, the uncertainty surrounding trade policies and their impacts remains high, urging the Bank of Japan to maintain an accommodative monetary policy to support the economy.
The summary showed that committee members had differing views on the intensity of inflation. The inflation rate has remained at or above the Bank of Japan's target level of 2% for over three years. There are still questions about whether the Bank of Japan believes the consumer inflation trend is sustainable.
One committee member noted that the core inflation rate seems to be around the Bank of Japan's target level of 2%. However, members also cautioned that there are still downside risks to prices, and whether the core inflation rate can be maintained at this level is a point of concern.
Another committee member stated that medium- to long-term inflation expectations have been rising, and current inflation has already impacted households' economic well-being.
The committee member said, "The Bank of Japan is currently at a stage where it needs to pay more attention to the risks of rising prices. Given this, the Bank of Japan is likely now entering a phase where it should consider its communication approach from the perspective of achieving price stability goals."
