"Japan BOJ Likely Not to Raise Interest Rates This Month"

Former BOJ Director: "Increase as Early as September"

Hideo Hayakawa, former BOJ board member, revealed that the Bank of Japan (BOJ) is unlikely to raise interest rates this month.

Hayakawa, a former chief economist at the BOJ, said in an interview with Bloomberg on the 18th, "Recent data makes it difficult to confirm that the economy is moving in line with the BOJ's expectations," adding, "I do not think there is a possibility of a rate hike in July."

Bank of Japan
Photo by AFP Yonhap News

Japanese consumer spending declined every quarter for a year until March, supported by a long-term drop in real wages. Hayakawa explained that this is an unexpected sign of weakness for the BOJ. He also said that the economy is expected to recover this summer and that the BOJ needs more time to evaluate this data.

Ahead of the Monetary Policy Meeting scheduled for the 30th to 31st, the majority of the market expects the BOJ not to raise interest rates this time. However, some economists believe that the authorities may raise rates this month due to the weak yen.

Hayakawa said that instead of raising interest rates, the BOJ will reduce bond purchases more significantly than expected to send a strong signal to ease pressure on the yen. Reducing purchases can put upward pressure on yields and help narrow the large gap between long-term interest rates. Bloomberg assessed this as an important factor influencing movements in the foreign exchange market.

Hayakawa warned, "The BOJ should not be overly cautious in reducing bond purchases," adding, "Even if the BOJ keeps rates unchanged, if it maintains an overly cautious stance, the market will price in a weaker yen."

Bloomberg reported that the Japanese Ministry of Finance has likely spent about 15 trillion yen in recent weeks on foreign exchange interventions to boost the yen's value, putting pressure on the BOJ not to further induce yen weakness.

Hayakawa said, "The Ministry of Finance is probably thinking 'do something' to the BOJ," and added, "If the BOJ triggers another decline in the yen's value, trust between the Ministry of Finance and the BOJ will be cut off."

He also said that the next rate hike is likely to occur this fall. He mentioned that if data confirms that the economic foundation is solid, the BOJ could raise rates as early as September.