The Bank of Japan (BOJ) discussed price risks that warrant further rate increases even after raising its June benchmark rate to the highest level in 31 years. On the same day, U.S. Treasury Secretary Scott Bessent said Japan's large-scale monetary easing was a factor behind the weak yen and urged the country to move away from its low interest rate policy.
Reuters reported this on the 5th, citing the minutes of Japan's June monetary policy meeting. The minutes also confirmed that two members called for faster rate increases. They argued that the policy rate should be pushed closer to a level considered neutral for the economy. This is seen as a sign of growing BOJ vigilance over the broad-based spread of inflationary pressures.
Some policy board members forecast that consumer prices would rise sharply in the second half of this fiscal year. They cited plans by companies to raise prices across a range of items. One member said, "Even if the conflict in the Middle East ends and crude oil prices fall, price pressures will remain." This is because transportation and storage costs are high due to securing alternative supply sources. The BOJ earlier raised its benchmark rate to 1% at its June meeting, the highest in 31 years. This came as rising fuel costs stemming from the Middle East conflict added to price pressures arising from the weak yen and labor shortages.
In an interview with the Nihon Keizai Shimbun that day, Bessent said long-term large-scale monetary easing was a factor behind the weak Japanese yen and urged Japan to move away from its low interest rate policy. He said, "Now is the time for Takaichinomics." The Nikkei interpreted the remark as an indirect call for Japan to halt its low interest rate policy.
Price indicators also support the pressure for a hike. June wholesale prices rose at the fastest pace in more than three years. The producer price index (PPI) surged 7.1%. June core consumer prices fell below the BOJ's target of 2% due to the effect of government subsidies, but experts predicted such pressures would push up core prices.
A majority of members assessed that the pass-through of high oil prices had progressed relatively quickly in business-to-business transactions. This was based on the view that the trend could spread to consumer prices across a wide range of items. They said, "Given that companies have become more aggressive in raising prices, we should be more concerned about the risk of prices accelerating further."
Some members pointed out that the risk of companies passing on price increases not only to fuel costs but also to labor and transportation costs was growing. This could become additional upward pressure on consumer prices. The board also discussed the BOJ's vast balance sheet strategy. One member argued that the scale should be steadily reduced to avoid the side effects of excessive money supply.
The BOJ later held rates steady at its July meeting. However, it signaled the possibility of a September hike by stating that future policy discussions would focus on upside price risks. The discussion confirmed in these minutes supports the possibility of a further hike in September. This means growing attention within the board over the spread of price pressures.
