Weak Yen, Labour Crunch Key to BOJ Rate Hike Timing

The Bank of Japan considered mounting inflationary pressures stemming from a weak yen and labour shortages, among other factors, as key influences for the timing of additional interest rate hikes, according to minutes from a December meeting.
The discussions reflected the board's readiness to continue raising still-low borrowing costs even after its decision in December to raise the policy rate to a 30-year high of 0.75%. While some members preferred treading cautiously on future rate hikes, others said inflation was becoming more entrenched and persistent as companies pass on wage increases alongside raw material costs, according to the minutes. A weak yen adds to inflationary pressure by pushing up import costs at a time when more businesses were actively raising wages and prices, some members said.
A weak yen has become a source of concern for policymakers, as it hurts households through rising cost of living, a focal point in Japan's general election on February 8. After sliding near the key 160-per-dollar mark earlier in January, the yen rallied as much as 3% over the last two sessions to around 153 amid speculation of U.S. and Japan rate checks - often seen as a precursor to official intervention. One member said the yen's fall and rising long-term interest rates were partly due to the BOJ's policy rate being too low relative to the rate of inflation, the minutes said.
With core consumer inflation exceeding the BOJ's 2% target for nearly four years, markets speculate that additional price pressure from a weak yen could lead to a rise in interest rates again in the coming months.
While most members said the BOJ should not have a pre-set timeline on the pace of rate hikes, one suggested tightening in "intervals of a few months" as its policy rate remained distant from levels deemed neutral to the economy, the minutes showed.
Another member underlined the importance of assessing a broad range of indicators, including anecdotal data, to determine whether a sustained mechanism of moderate wage and price increases had taken hold.

(Source: Reuters)