According to the Nihon Keizai Shimbun (Nikkei) on June 9, the Bank plans to make this decision at its monetary policy meeting scheduled for June 15-16, increasing the current rate from 0.75%. If approved, this would be the first rate hike since December of last year and the highest level since 1995.
Nikkei reports that Governor Kazuo Ueda and the executive board are expected to propose the rate hike during the meeting, with the nine-member policy committee likely to approve it with a majority vote.
Concerns are rising within the Bank regarding the potential for increased oil prices due to tensions in the Middle East, which could lead to broader price hikes across various goods. There is also an expectation that the underlying inflation rate, excluding temporary fluctuations, may rise.
Excluding the impact of government subsidies for electricity and gas, the Bank's consumer price index (CPI) rose 2.8% in April compared to the same month last year, up from a 2.5% increase in March.
A Bank official told Nikkei, "The pace at which companies are passing on costs is accelerating. If we miss the timing, we may be forced into a significant rate hike later on." Nikkei also noted that the assessment of limited economic downside risks from Middle East tensions is bolstering the case for a rate increase. There is a growing sentiment within the Bank that proactive measures are needed to address inflationary pressures.
Earlier, Governor Ueda indicated the need to discuss the appropriateness of a rate hike even amid uncertainties in the Middle East during a speech on June 3, hinting at the possibility of an increase this month. However, in light of instability in the bond market, plans to reduce government bond purchases are expected to be moderated. The Bank is coordinating to halt its current quarterly reduction of bond purchases after April 2027.
Under the current plan, the Bank will continue to reduce its bond purchases by 200 billion yen (approximately $1.9 billion) each quarter until January-March 2027, and then maintain monthly purchases of 2.1 trillion yen (approximately $19.9 billion) starting in April of that year. Recently, the Japanese bond market has shown instability due to concerns over inflation and fiscal expansion. In May, the yield on newly issued 10-year government bonds, a key indicator of long-term rates, briefly rose to around 2.8%, marking the highest level in 29 and a half years.
Additionally, the yen has continued to weaken, surpassing the 160 yen per dollar mark for the first time in a month.
If the Bank of Japan proceeds with the rate hike, it is expected to create policy friction with the government of Sanae Takaichi, which is pursuing an expansionary fiscal policy.
* This article has been translated by AI.
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