TOKYO—The Bank of Japan’s next meeting comes amid rising expectations that it will raise rates again this year, perhaps as soon as this week. But with policymakers split on whether that will help or hurt consumer spending, question marks remain around what the central bank will do to bolster the economy.
TOKYO—The Bank of Japan’s next meeting comes amid rising expectations that it will raise rates again this year, perhaps as soon as this week. But with policymakers split on whether that will help or hurt consumer spending, question marks remain around what the central bank will do to bolster the economy.
At its two-day meeting ending Wednesday, the central bank’s policy board is expected to discuss whether the nation is ready for another rate increase as inflation continues to hover above its 2% target. The bank has maintained an interest-rate target range of 0% and 0.1% since March, when it decided to end eight years of negative interest rates.
At its two-day meeting ending Wednesday, the central bank’s policy board is expected to discuss whether the nation is ready for another rate increase as inflation continues to hover above its 2% target. The bank has maintained an interest-rate target range of 0% and 0.1% since March, when it decided to end eight years of negative interest rates.
According to a survey by data provider Quick, 26% of bond market participants said last week that they expected the BOJ to raise interest rates on Wednesday.
A focal point for the BOJ is sluggishness in private spending as price rises outpace wage growth. Japan’s economy has been struggling to grow, with gross domestic product registering a 2.9% annualized decline in the January-March quarter, hurt by weak consumer spending.
Some policymakers believe rate increases would have positive effects on consumption because the major cause of weak spending is the yen’s depreciation, said people familiar with the BOJ’s thinking. A weak yen increases prices of imported products such as gasoline and food.
Against this backdrop, political pressure has increased for the bank to take immediate action.
“It is necessary to make the yen strong and stable,” Toshimitsu Motegi, secretary-general of the ruling Liberal Democratic Party, said last week, asking the bank to clarify its stance on monetary tightening.
While the central bank isn’t directly in charge of currency policy, Gov. Kazuo Ueda has previously said it would consider taking action if the yen’s depreciation affects its price outlook significantly. The bank is scheduled to release its quarterly outlook on prices and growth on Wednesday.
Expectations for the narrowing of the Japan-U.S. interest-rate gap has helped the yen strengthen sharply against the dollar in recent sessions. The yen stood around 153.30 to the dollar Monday in Tokyo after weakening to 162 earlier in July.
Other policymakers doubt how much a small rate increase can contribute to the yen’s recovery, said people familiar with the bank’s thinking. They worry that higher interest rates will hurt consumer confidence, as factors such as higher mortgage payments make people more reluctant to spend.
If the bank keeps interest rates unchanged Wednesday, the yen could weaken again. But analysts say falls may be limited because the BOJ is still likely to raise interest rates at least once this year, while the Federal Reserve is expected to start cutting rates soon.
“Even if the BOJ maintains interest rates [this week], it will likely show a hawkish pose” to indicate that a rate hike is coming, said Sumitomo Mitsui Banking Corp. strategist Hirofumi Suzuki.
In another step toward unwinding ultraeasy monetary policy, the bank is slated to announce detailed plans for reducing its government bond purchases. Market participants expect the bank to halve the monthly purchase from the current 6 trillion yen, equivalent to about $39 billion.
Write to Megumi Fujikawa at megumi.fujikawa@wsj.com