BOJ to Mull Raising Interest Rates to 0.25%

Jiji Press

11:14 JST, July 31, 2024

Tokyo (Jiji Press)—Bank of Japan policymakers will consider a plan on Wednesday to raise short-term interest rates to some 0.25 pct from the current range of zero to 0.1 pct, people familiar with the matter told Jiji Press Tuesday.

BOJ officials are increasingly confident that inflation will move stably at levels around the central bank’s 2 pct goal, given that wage increases at major companies are spilling over into smaller firms and regional areas.

The BOJ ended its negative interest rate policy in March.

On Wednesday, the BOJ will also adopt a detailed plan for reducing its government bond purchases.

Possible options include cutting the monthly amount of the BOJ’s government bond purchases to some ¥3 trillion by the end of fiscal 2025 from about ¥6 trillion at present.

BOJ officials think that the Japanese economy is likely to avoid a recession thanks to higher wages and tax cuts though personal consumption is weak amid higher prices.

They also believe that the BOJ should raise interest rates out of concerns that a weaker yen could send prices for imported goods rising sharply.

Some BOJ officials, however, argue that the central bank should wait until inflation-adjusted wages move into plus territory.

BOJ policymakers will also discuss how an interest rate increase will affect the economy. A rate increase could weigh on consumer and business spending by sending interest rates on housing loans and lending to businesses higher.

In a quarterly economic and price outlook report that the BOJ is scheduled to release Wednesday, the central bank is expected to reiterate that inflation will move at levels around the 2 pct goal going into fiscal 2026.