The Bank of Japan’s summary of opinions from its June 15-16 meeting, released on June 24, showed several policymakers supporting further increases in the policy rate after the board voted 7-1 on June 16 to raise the short-term rate to around 1.0%, effective June 17.
The summary said Japan’s economy was recovering moderately, while noting some weakness related to developments in the Middle East. Members said the baseline scenario from the April outlook remained broadly intact and indicated that underlying inflation was approaching the bank’s 2% target, even though recent consumer inflation had been below 2% because of government measures.
The document said firms were passing higher input and distribution costs through prices more quickly and that medium- to long-term inflation expectations were rising, with references to market-based indicators including break-even inflation and a steeper yield curve. Several members also said financial conditions remained accommodative, citing negative real interest rates, increased lending, favorable corporate funding conditions, and higher asset prices.
Some opinions said the policy rate was still below a neutral level and should be moved closer to neutral, with one view placing neutral around 2% and another saying rate decisions could be considered at intervals of a few months. One board member opposed the June rate increase, citing risks to output and employment from Middle East developments.