BOJ Discussed the Necessity for a Rate Rise in Good Time and Hinted at Potential Action in July

The board's increasing awareness of the world's fourth-largest economy's escalating inflationary pressure is underscored by the discussion. This could potentially prompt the BOJ to consider raising interest rates at its upcoming policy meeting on July 30-31.

At the June 13-14 policy meeting, a member was quoted as stating that the yen's recent declines have increased the likelihood of an upward revision to the BOJ's inflation forecasts. This implies that the appropriate level of the policy rate could be moved higher.

Another opinion stated that the BOJ must continue to closely monitor data in the lead-up to the next policy meeting in July, as the potential for price increases has become more apparent. "If deemed appropriate, the BOJ should raise its policy rate without too much delay."

According to a third opinion, the central bank must evaluate whether additional rate rises are necessary, as inflation may surpass its projections if companies continue to attempt to pass on the recent increases in costs.

Nevertheless, the summary indicated that certain members of the nine-member board were more apprehensive about an impending rate increase, citing the necessity of examining whether increasing wages would stimulate consumption.

In a research note, Ryutaro Kono, the chief Japan economist at BNP Paribas, stated that the risk of the BOJ raising rates in July may be greater than initially anticipated. He also suggested that the bank could take action next month if the yen continues to decline rapidly.

On Monday, the benchmark 10-year Japanese government bond (JGB) yield reached its highest level since June 12, reaching 0.995%, as a result of the hawkish tone of the BOJ summary.

According to analysts, the timetable of the rate hike could be influenced by a meeting of the BOJ's regional branch managers on July 8 and the "tankan" quarterly business sentiment survey, which is scheduled to be released on July 1.

The BOJ maintained short-term rates at a range of 0-0.1% during the June meeting. However, it has decided to disclose a comprehensive strategy for reducing its $5 trillion balance sheet next month, indicating that it is making progress toward normalizing monetary policy.

The BOJ has also hinted that it will raise short-term rates to a level that does not chill or exacerbate the economy, which analysts perceive as somewhere between 1-2%, in response to inflation exceeding its 2% target for two years.

Numerous market participants anticipate that the Bank of Japan (BOJ) will increase rates at some point this year; however, they are divided on whether the timetable will occur as early as July or later in the year.

Japan's core inflation increased from 2.2% to 2.5% in May, primarily as a result of increased energy levies.

The policy path of the BOJ is complicated by the depressed yen. Although it assists in maintaining inflation above its 2% target, the increase in the prices of imported products has had a negative impact on consumption by increasing the living costs of households.

On Friday, the dollar momentarily reached 159.62 yen, which is not far from the 34-year nadir of 160.245 that was reached on April 29, which prompted Japan to intervene in the market. On Monday, it was valued at 159.87 yen in Asia.

"The BOJ's assessment of trend inflation and wage developments is the foundation of monetary policy, rather than short-term developments in the foreign exchange market," stated one opinion, dismissing the notion that the bank could raise rates in the near future to mitigate the yen's declines.