The minutes from the Bank of Japan's April policy meeting revealed that several board members advocated for an early interest rate hike during the session, with one member explicitly stating the possibility of a rate increase in June. This highlights the growing hawkish inclination within the central bank as the oil shock triggered by the conflict in Iran intensifies recent tightening pressures. Consequently, Japan's 10-year government bond yield climbed to a 29-year high on Tuesday.
The minutes cited one member's view, stating, "Even with ongoing uncertainties regarding the future course of the Middle East situation, it is highly likely that the Bank of Japan will initiate a rate hike starting from the next meeting." Another member expressed the opinion, "While there is no need for hasty action at this stage, as long as there are no clear signs of an economic slowdown, the central bank should proceed with a rate hike as soon as possible."
Further comments indicated that the current Bank of Japan policy rate remains significantly below the neutral economic interest rate level, necessitating steady rate hikes every few months. Should inflation risks escalate further, a more decisive acceleration in the pace of rate increases would be warranted.
These remarks have heightened the likelihood that the central bank will raise interest rates at its next policy meeting scheduled for June 15–16. During the April 27–28 meeting, the Bank of Japan kept the short-term policy rate unchanged at 0.75%, but the hawkish divergence within the committee underscored increasing concerns over inflation pressures stemming from the Middle East conflict. Three of the nine board members advocated for a rate hike, and although the proposal was rejected, it prompted the central bank to significantly revise upward its inflation forecasts.
The meeting minutes showed that many policy board members noted the conflict in Iran is exacerbating inflation pressures, raising the risk of second-round effects and bringing forward the timeline for underlying inflation to reach 2%. One member was quoted as saying, "With inflation expectations being significantly revised upward and uncertainty in the Middle East remaining high, all scenarios indicate further upside risks to prices." The member added, "Moreover, if supply-side constraints materialize, they will exert extremely strong upward pressure on prices."
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