Bank of Japan board member Junko Koeda has signaled support for raising benchmark interest rates, in the latest indication that momentum is building for a move as early as next month.
“I see some possibility that underlying inflation may exceed 2% looking ahead,” Koeda said Thursday in a speech to local business leaders in Fukuoka Prefecture. “I therefore believe it is reasonable for the bank to raise the policy interest rate at an appropriate pace to address high inflation while also considering the trade-offs for the economy.”
Koeda was among those who voted with the majority in favor of holding settings steady at the last policy meeting, on April 28, in a 6-3 decision that was the biggest split so far under Kazuo Ueda’s governorship. While Koeda didn’t specify a preferred timing for the next move, her comments may support speculation over a hike the next time authorities decide policy on June 16.
She is the second board member in that majority camp to signal the likelihood of rate hikes to come, joining Kazuyuki Masu, who said earlier this month that provided the economy holds up, authorities should hike “at the earliest stage possible.”
As of Thursday morning in Tokyo, traders were projecting a roughly 80% chance of a rate hike next month, according to pricing in the overnight swaps market.
Recent economic data showed that Japan’s economy is holding up even as it faces the fallout from the conflict between the U.S. and Iran. The economy grew more than expected in the first three months of this year, according to a Cabinet Office report earlier this week. At the same time, producer prices jumped by the most since 2014 in April, highlighting building inflation momentum.
Koeda, a former economics professor, also signaled some caution, saying it’s important to assess the impact stemming from the Middle East conflict.
She cited the need to gauge “to what extent external demand will weaken, and, under these circumstances, how Japan’s net exports will change in light of current exchange rate levels.” She also said authorities need to get a sense of how higher energy costs stemming from the turbulence affected domestic demand.
Japan relies heavily on importing natural resources. With few obvious prospects for ending the geopolitical turbulence, there is concern that fuel shortages and high prices could spur broader inflation as risks of an economic slowdown also emerge.
Prime Minister Sanae Takaichi made a 180-degree pivot this week on the issue of an extra budget, saying she has asked the Finance Ministry to look into ways to fund a spending package, which is expected to consist of emergency relief measures rather than economic stimulus steps.
As the BOJ scales…