Bank of Japan signals potential rate hike in July

Posted on June 24, 2024   |  

The central bank might raise interest rates next month, showing a commitment to increase borrowing costs from near-zero levels gradually

A weak yen could affect household spending due to higher import costs, but rising wages are expected to support consumer spending and help the economy recover moderately.

The BOJ plans to cut back its large bond purchases and outline a strategy in July to reduce its nearly $5 trillion balance sheet, moving away from its major monetary stimulus.

This decision has created uncertainty about whether the BOJ will raise short-term rates at the July 30-31 meeting or wait until later to avoid disrupting markets.

In March, the BOJ ended its negative interest rates and bond yield control, marking a significant shift from its long-standing radical stimulus approach.

With inflation above the 2% target for two years, the central bank no longer suggests raising short-term rates to a neutral level that neither cools nor overheats the economy.

The weak yen complicates BOJ policy, as it increases inflation by raising import prices, which in turn affects living costs and consumer spending, raising concerns about Japan's economic strength.