The Japanese government has shifted to a supportive stance for an early interest rate hike by the Bank of Japan (BOJ), despite ongoing yen depreciation, according to a report by Bloomberg on August 13, citing sources.
The Takaichi government is reportedly backing the BOJ's early rate increase, with September or October being the most likely timeframe for the next hike. Prior to the BOJ's monetary policy meeting on July 31, the government conveyed to BOJ Governor Kazuo Ueda that hawkish remarks would be acceptable during a press conference, according to a source.
In fact, during the BOJ's monetary policy meeting last month, the short-term policy rate was held steady at 1%. However, Governor Ueda later indicated the importance of considering the risk of inflation overshooting, suggesting the possibility of future rate hikes. On the same day, the U.S. and Japan conducted a coordinated intervention to buy yen, the first such action since 1998.
Recently, officials from the Takaichi government have emphasized the independence of the BOJ, effectively lending support to the idea of a rate hike. Economic and Fiscal Policy Minister Minoru Kikuichi stated on August 10, "We respect the independence of the Bank of Japan," while the Prime Minister's Office reiterated via email that decisions on specific monetary policy measures, such as interest rate hikes, should be made solely by the BOJ. They added that the BOJ should work with the government to achieve its inflation target of 2% "stably."
The Takaichi government has pursued expansionary fiscal policies to stimulate the economy and has previously shown caution against rapid rate increases. Conversely, the BOJ has raised the need for rate hikes to curb rising import prices due to yen depreciation, leading to a divergence in policy direction between the government and the BOJ. However, as the yen-dollar exchange rate approaches 160 yen per dollar, there is a growing consensus within the government regarding the BOJ's concerns about inflation.
Regarding the timing of the next rate hike, the BOJ prefers to assess economic and price trends further before making a decision, but sources indicate that a September hike cannot be ruled out. As of lunchtime on the day of the report, the likelihood of a rate increase at the BOJ's monetary policy meeting on September 18 was estimated at 74%.
Since Takaichi took office as Prime Minister last October, the BOJ has raised rates twice. If a third hike occurs in September or October, it would mark the fastest rate increases since Japan's economic bubble period in 1989, according to Bloomberg.
Meanwhile, the yen, which was nearing 164 yen per dollar at the end of last month, fell to the 155 yen range following the U.S.-Japan coordinated intervention, but this effect was short-lived. As of August 13, the yen-dollar exchange rate has risen to around 159.4 yen, once again threatening the 160 yen mark.
* This article has been translated by AI.
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