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BOJ debated weak yen's impact on inflation, April minutes show

2024-06-19 11:05:02

By Leika Kihara

TOKYO (Reuters) -Bank of Japan policymakers debated the impact a weak yen could have on prices, with some flagging the chance of raising interest rates sooner than expected if inflation overshoots, minutes of the central bank's April policy meeting showed.

A few members of the nine-person board said the central bank must respond with monetary policy if exchange rate moves, which are among the key factors affecting the economy and prices, alter its view on the outlook and risks, the minutes released on Wednesday showed.

The weak-yen boost to inflation may have become bigger and more lasting than in the past, as companies are already keen to hike prices and wages, some members were quoted as saying.

"There are various upside risks to inflation," such as the fallout from a weak yen, expansionary fiscal policy and a tight labour market, one member said, according to the minutes.

"Currency moves are among key factors affecting the economy and prices. If the economic and price outlook, or the risks, change, the BOJ must respond with monetary policy," a few members were quoted as saying in the minutes.

At the April meeting, the BOJ kept interest rates around zero and highlighted a growing conviction that inflation was on track to durably hit its 2% target in coming years, signalling its readiness to hike borrowing costs later this year.

The minutes came in the wake of BOJ Governor Kazuo Ueda's comments in parliament on Tuesday that the central bank could raise interest rates in July depending on economic and price data available at the time.

The discussion at the April meeting highlights a shift away from the BOJ's previous stance that the boost to inflation from a weak yen would prove temporary, and thus won't directly affect the timing of future rate hikes.

In a sign of how the board was turning increasingly hawkish, one member said the BOJ could normalise monetary policy sooner than expected if inflation overshoots due in part to a weak yen, the minutes showed.

Another member also said the central bank could raise rates more than what markets currently expected, if the economy and prices move in line with its projections, the minutes showed.

The BOJ exited negative rates and bond yield control in March in a landmark shift away from a decade-long, radical stimulus programme.

Many economists expect the BOJ to hike interest rates to 0.25% this year, though they are divided on whether it will come in July or later in the year.

A weak yen complicates the BOJ's policy path. While it accelerates inflation by pushing up imported goods prices, the subsequent rise in living costs has weighed on consumption and cast doubt on the strength of Japan's economy.

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