Exclusive BOJ discusses messages about rate hike as Reuters rises as inflation rises

By Leika Kihara

TOKYO (Reuters) – Bank of Japan officials are debating whether to raise interest rates on telegraphs soon, which could come before inflation reaches the bank’s 2% target, sources say, boosted by price hikes and a more troubled Federal Reserve. .

Although the real rate hike is almost imminent and the BOJ is on track to maintain an ultra-loose policy, at least this year, the financial markets underestimate that it is ready to phase out its once-radical radical promotion program.

Notably, the BOJ’s carefully written commitments to maintain a volatile monetary policy apply only to constantly pumping money into the markets, not to keep rates at current low levels.

“The BOJ never committed to keep rates stagnant until inflation was above 2%,” said a source familiar with the BOJ’s thinking, echoing the opinion of two other sources.

“This means that in theory, rates can rise before inflation exceeds the target.”

After nine years of aggressive fundraising, the BOJ seems to be finally getting what it wants. Inflation is growing towards its fleeting target and public perception is already changing that deflation will continue.

With the rise in higher commodity prices, rather than the expected rise in domestic demand, the BOJ’s short-term priority is to prevent a temporary rise in inflation, with a tightening of the initial policy to boost market speculation.

Many BOJ officials do not expect the conditions to justify a rate hike to be set this year, given the uncertainty that consumption will continue to boost prices enough for companies to continue raising prices.

This means that the real rate hike will not come until 2023 and will be subject to a new deputy governor of Haruhiko Kuroda, whose term will end in April next year.

But the Fed’s ongoing plans to raise the rate, a weak yen and rising public costs are causing public outcry over the BOJ’s push for a future exit plan, sources said.

“For the first time, there are not only downsides to price forecasts, there are upside risks,” a second source said.

“The BOJ needs to pay close attention to what other central banks are doing,” a third source said, adding that the number of foreign opponents is growing as the rate rises.

The nine-member board of the central bank is divided between those who see the possibility of a stimulus reduction and those who are cautious about taking any step that could be interpreted as a tough policy, sources said.

JOINING THE OUTPUT LINE

BOJ is phasing out quantitative easing (QE) https://tmsnrt.rs/33uLBWQ by steadily reducing asset purchases. The current rate for buying bonds is less than one-fifth of the level of 2016, when the rate of money switching to a policy of targeting interest rates changed from the rate of printing money.

Purchases of risky assets are also slowing, and in March it will remove a loan scheme to alleviate the coronavirus pandemic, a move that will reduce its cash supply to the economy.

The BOJ has been able to shrink markets without being shaken, in part, as stocks rose and the yen was weakening as a trend.

For the BOJ, it would be to continue to reduce the purchase of active sequences and adjust the performance control (YCC) targets, which are set at around -0.1% in short-term rates and around zero 10-year bond yields.

The central bank has begun to lower the signs that the days of zero-rate forever can be counted, increasing the chances of rising inflation.

Kuroda said last month’s inflation could be close to the target of a 2% rise in commodity costs, and the clearest sign so far was that price upward pressures would spread.

After a comment by Deputy Governor Masayoshi Amamiya, inflationary pressures were gradually increasing so that more companies could pass on the costs to consumers.

The next step could be to adjust its guidelines towards future rates, based on the current commitment to keep the current “low or low levels,” sources said.

This can happen even before inflation is sustainable at 2%.

The BOJ has promised to increase the pace of printing money until inflation is stable at more than 2%. But he has not promised how long he will keep the rate targets at current levels.

“Obviously, it’s intentional,” said a fourth source on the language driving the rate. “Central banks need to leave themselves with some flexibility to adjust rates.”

Although there is no consensus within the BOJ, the ideas are to set aside negative rates, expand an implicit band that allows 10-year earnings to move to its 0% target, or focus on shorter-term bond yields, sources said.

There is uncertainty that the BOJ could actually raise rates, although expectations that the Fed will rise threefold this year are growing, starting in March.

Over the years the government has been unable to persuade companies to raise their salaries with aggressive money cuts and incentives.

Political factors also bind the hands of the BOJ.

The government is dependent on the BOJ to secure a huge pile of debt in Japan, which, double its economy, is the largest of the advanced nations. Even a small rise in borrowing costs could be a huge blow to Japan’s finances.

This could mean that the task of raising rates would be left to the BOJ governor. Amamiya is considered one of the strongest candidates to succeed Kuroda.

“If consumers become more responsive to price increases, this could allow the BOJ to discuss raising rates,” a fifth source said. “But it will not be easy to negotiate with the government and it will take time, given Japan’s large public debt.”