The Bank of Japan (BOJ) is signaling a potentially larger quantitative tightening (QT) plan in July, accompanied by a possible interest rate hike, as it gradually retreats from its substantial monetary stimulus. Hawkish hints from the central bank reflect the pressure it faces following renewed yen depreciation, which could elevate inflation by increasing import costs, potentially surpassing the 2% target.
Sources familiar with the BOJ’s stance suggest that, barring a market shock or severe economic downturn, a rate hike could be considered at each policy meeting, including July’s. With inflation trends in focus, interest rates are deemed too low, prompting discussions on a timely hike to counter upward cost pressures.
While interest rates were maintained around zero this month, recent board discussions indicate a debate on the necessity of a timely hike, with one member suggesting action to prevent excessive inflation. Governor Kazuo Ueda acknowledged the possibility of a rate hike next month, signaling potential market impact, especially as the BOJ plans to unveil a detailed strategy for reducing its massive bond purchases and shrinking its $5 trillion balance sheet.
Source: Reuters