Bank of Japan officials see prices rising a little stronger than they expected earlier in the year, a factor that may open the door to discussions over whether to raise interest rates if global trade tensions ease, according to people familiar with the matter.
The officials expect the central bank¡¯s benchmark interest rate to be left at 0.5% at the end of a two-day gathering next week as they need to monitor developments in tariff talks globally and their economic implications, the people said.
But if tariff measures turn out to be not so disruptive for the underlying price trend, officials would see that supporting a discussion over whether to raise the rate, the people said.
The comments from the people suggest that provided there is more clarity on the global trade situation, the central bank could raise rates by the end of this year.
The BOJ meets on Monday and Tuesday next week and is widely expected to stand pat with investors focusing largely on its future bond buying plans and whether it will slow its paring of purchases from spring next year.
For the time being the trade picture remains very unclear. Japan¡¯s top negotiator will arrive in Washington on Friday for a sixth round of talks with the U.S. ahead of a Group of Seven summit in Canada. Prime Minister Shigeru Ishiba may meet President Donald Trump on the sidelines of the G7 gathering.
While Japan is seeking the removal of 25% tariffs on autos as part of the trade talks, Trump said Thursday he was considering raising the levies on car imports to the U.S. even higher.
Should clarity emerge on the trade front, though, the central bank would be in a position to consider raising rates given the firmness of prices, the people said.
Recent price growth is a tad stronger than officials expected earlier in the year, the people said. Some officials see the relative strength in inflation reflecting a change in price-setting behavior with sharp increases in the price of rice likely to harden inflationary views among consumers, they said.
Core inflation accelerated to 3.5% in April, the latest available national price data showed.
In a survey conducted earlier this month, some 34% of economists expect the central bank to wait until January before raising the rate again, making that month the most popular choice for the next hike.
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