BoJ Gears Up to Hike Rates Again but Leaves Free Hand on Timing

• The Bank of Japan (BoJ) laid the groundwork this week for resuming interest rate hikes by spelling out explicitly for the first time the risks that persistent food price rises fan broad-based inflation.
• While markets took a dovish reading of BoJ Governor Kazuo Ueda's commentary after Thursday's policy meeting, much of his guidance suggests the bank is inching back towards action after a period of waiting and watching, analysts say.
• A shift in the board's inflation bias and its less gloomy view on the impact of U.S. tariffs also underscores the BOJ's resolve to pull the trigger once it is convinced the damage from higher levies will be within its expectations.
• Such hawkish signals in the BoJ's quarterly report, which represents the board's consensus view on the policy outlook, were qualified by Ueda's comments suggesting he was in no rush to raise interest rates. Still, Ueda said Japan was making some progress towards durably hitting the BoJ's 2% inflation target and stressed that its policy rate - at 0.5% - remains very low.
• All in all, the signals show the BoJ is preparing for another rate hike, while leaving all options open on the exact timing, analysts say.
• The BoJ holds its next policy meeting in September and another in October, when the board conducts a quarterly review of growth and price forecasts. It holds its final meeting for this year in December

(Source: Reuters)