BOJ board signals intent to keep hiking rates

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By Leika Kihara

TOKYO- Bank of Japan board members discussed how to use estimates on the economy’s neutral interest rate to determine further hikes in borrowing costs, with one saying the BOJ’s policy rate was still far from that level, minutes of their December meeting showed.

Another member questioned whether it was appropriate to use estimates based on data from Japan’s prolonged period of deflation, in determining the timing of future interest rate hikes, according to the minutes released on Wednesday.

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“If the policy rate approached the neutral rate, the BOJ would need to slow the pace of rate hikes to carefully examine how the economy and prices would respond,” the minutes quoted one member as saying.

“At this point, however, the policy rate was still far from neutral. It’s therefore desirable to raise rates in a timely manner,” the member was quoted as saying, suggesting the BOJ had scope to push up borrowing costs several more times in the current cycle.

The remarks highlight intensifying debate within the BOJ on how far the central bank should eventually push up borrowing costs, as inflation has topped its 2 percent target for nearly three years and wage hikes broaden due to labor shortages.

At the December meeting, the nine-member board also agreed to have BOJ staff overseeing Japan’s financial system attend all of the eight policy-setting meetings held each year.

“Having them participate would be beneficial in monitoring the effects of rising interest rates on Japan’s financial system,” one member was quoted as saying.

At present, the staff only attend the four meetings that produce quarterly growth and inflation forecasts.

The BOJ kept interest rates steady at the Dec. 18-19 meeting on the view it needed more time to scrutinize wage developments and US economic policy. It raised rates to 0.5 percent from 0.25 percent in a subsequent meeting in January. — Reuters

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