The Bank of Japan laid the groundwork this week for resuming interest rate hikes by spelling out explicitly for the first time the risks that persistent food price rises fan broad-based inflation. While markets took a dovish reading of BOJ Governor Kazuo Ueda's commentary after Thursday's policy meeting, much of his guidance suggests the bank is inching back towards action after a period of waiting and watching, analysts say. Get a daily digest of breaking business news straight to your inbox with the Reuters Business newsletter. Sign up here. Advertisement · Scroll to continue A shift in the board's inflation bias and its less gloomy view on the impact of U.S. tariffs also underscore the BOJ's resolve to pull the trigger once it is convinced the damage from higher levies will be within its expectations. Such hawkish signals in the BOJ's quarterly report, which represents the board's consensus view on the policy outlook, were qualified by Ueda's comments suggesting he was in no rush to raise interest rates. Still, Ueda said Japan was making some progress towards durably hitting the BOJ's 2% inflation target and stressed that its policy rate - at 0.5% - remains very low. Advertisement · Scroll to continue
Report This Ad "It's not as if we will wait until underlying inflation is firmly at 2%. Our decision is dependent on how likely underlying inflation will reach that level," Ueda told a news conference on Thursday when asked about the next rate-hike timing. All in all, the signals show the BOJ is preparing for another rate hike, while leaving all options open on the exact timing, analysts say. "The outlook report clearly shows the BOJ is starting to lay the groundwork for a rate hike," said Naomi Muguruma, chief bond strategist at Mitsubishi UFJ Morgan Stanley Securities. "The BOJ seems confident about prospects for durably hitting its inflation target," she said. "It may not be in a rush, but signaling that every policy meeting from now will be live." The BOJ holds its next policy meeting in September and another in October, when the board conducts a quarterly review of growth and price forecasts. It holds its final meeting for this year in December.
