BOJ Expected to Raise Interest Rates as Inflation Driven by Energy Crisis
Bank of Japan (BOJ) Board member Junko Koeda stated on Thursday (May 21) that the central bank is likely to raise interest rates at an “appropriate pace” as price pressures from the Middle East conflict have the potential to push core inflation above its 2% target. This statement increases the likelihood of a rate hike at the BOJ’s June 15–16 meeting.
Koeda emphasized the need to pay attention to the side effects of prolonged negative real interest rates, especially as oil prices are expected to remain high for an extended period. She noted that inflation has already started to rise and that the risk of inflation is greater than the potential for a recession, as companies pass on cost increases.
Wholesale inflation in Japan rose at its fastest pace in three years in April due to surging oil and chemical prices. Koeda believes the Japanese economy is likely to avoid a major downturn thanks to strong global demand in the information technology sector and a positive output gap.
Koeda’s comments follow comments from fellow board member Kazuyuki Masu, who also advocated for an interest rate hike if there are no signs of an economic slowdown. The market now rates an approximately 80% probability that the BOJ will raise interest rates in June, in line with economist surveys that overwhelmingly support a hike.
Future monitoring will focus on the BOJ's official decision, developments in global energy prices, and the impact of inflation on real interest rates and Japanese economic growth.
Variables to watch: Japanese inflation and production data, oil prices, the BOJ's June decision, and developments in the Middle East energy crisis. (arl)
Source: Newsmaker.id
