Bank of Japan sends hawkish signals post April policy meet, rate hike possible

BOJ policy meet: Bank of Japan (BOJ) board members, during April policy meeting, expressed a strong hawkish stance, highlighting necessity of grually increasing interest rates to mitigate risks of inflation surpassing 2 per cent target. Several members highlighted potential for a faster pace of rate hikes, particularly if underlying inflation continues to trend upward alongside a weaker yen.

discussion mirrors recent indications from BOJ Governor Kazuo Ueda, suggesting likelihood of multiple rate hikes in future. Despite se hawkish signals, yen has not strengned significantly, as market attention remains focused on diminishing prospects of immediate US interest rate cuts, maintaining a considerable interest rate gap between US and Japan.

During meeting, BOJ maintained its near-zero interest rate policy and released updated quarterly projections indicating a sustained inflation rate of around 2 per cent until early 2027, signalling preparedness for eventual rate hikes later this year. Many opinions expressed in meeting summary vocated for a grual increase in interest rates and contemplated reducing size of BOJ's bond purchases in future.

Some members mentioned role of moderate rate increases to prevent abrupt justments once inflation target is consistently met. Ors stressed need for timely justments to interest rates in line with improving growth and inflation outlooks.

Anticipating a potential deviation from market expectations, some members suggested possibility of BOJ's policy interest rate being higher than currently anticipated.

While market sentiment leans towards an interest rate hike later this year, opinions differ on pace of subsequent rate justments. ditionally, suggestions were me for BOJ to communicate its intention to eventually reduce bond purchases and shrink its balance sheet, with some vocating for eventual elimination of ETF holdings.

Any reduction in bond purchases could provide support for yen, although concerns persist over Japan's economic indicators, including recent declines in real wages. In March, BOJ concluded its prolonged negative interest rate policy and or unconventional stimulus measures, yet continues its substantial monthly purchases of Japanese government bonds.

While BOJ has ceased buying ETFs from market, it maintains its monthly purchases of Japanese government bonds and has refrained from selling bonds or ETFs.

(With PTI inputs)