By Leika Kihara
TOKYO, March 30 (Reuters) – Bank of Japan policymakers debated further rate hikes, with some flagging the chance of steady or faster-than-expected increases as the Middle East war drives up oil costs and stokes inflation, a meeting summary showed on Monday.
Broadening cost pressures from high oil prices could cause economic stagnation accompanied by price rises, or the kind of stagflation Japan experienced in the 1970s, one member said at the BOJ’s March policy meeting.
While the BOJ should avoid hasty rate hikes if inflation proves transitory, the member said it may need to tighten policy if a sharply weak yen intensifies cost pressures or second-round effects become more pronounced.
“There is a risk the BOJ may unintentionally fall behind the curve, since second-round effects and rise in underlying inflation stemming from overseas developments are more likely to emerge,” another opinion showed.
A third opinion said the BOJ may need to accelerate the pace of rate hikes and “shift toward neutral or restrictive” monetary policy if the Middle East conflict drags on.
At the March meeting, the BOJ kept interest rates steady but maintained its bias for tighter monetary policy, warning that surging oil prices driven by the Middle East conflict could exacerbate inflationary pressure.
While some on the nine-member board warned that higher oil prices could weigh on growth, others urged attention to broadening inflation pressures that add to steady wage gains and rising import costs from a weak yen, the summary showed.
“If there are no signs of a significant deterioration in the economy or in the wage-setting stance of small and medium-sized firms, the Bank will need to raise the policy interest rate without hesitation,” one member was quoted as saying.
(Reporting by Leika Kihara; Editing by Christopher Cushing and Shri Navaratnam)
