April 28 (Reuters) – The Bank of Japan kept interest rates steady on Tuesday but three of its nine-member board proposed hiking borrowing costs, signalling policymakers’ concerns over inflationary pressures from the Middle East conflict.
The central bank also sharply revised up its price forecasts and stressed vigilance to the risk of an inflation overshoot, signalling a strong chance of a rate hike in coming months.
Following are excerpts from BOJ Governor Kazuo Ueda’s comments at his post-meeting news conference, which was conducted in Japanese, as translated by Reuters:
IMPACT OF MIDDLE EAST CONFLICT
“Given high uncertainty surrounding the Middle East conflict, the likelihood of achieving our forecasts has diminished. On the other hand, there is both big downside risk to growth and upside risk to inflation mainly for fiscal 2026. At present, it’s hard to judge the duration and impact on the economy and prices now. The BOJ wants to spend a bit more time scrutinising how the Middle East conflict affects the economy and prices, and whether growth and inflation risks could change.”
RISING COSTS FOR OIL-RELATED GOODS
“With underlying inflation approaching 2%, we need to be mindful that companies may more actively pass on rising costs for oil-related goods. We would like to carefully gauge various data to ensure we’re not behind the curve.”
CONDITIONS FOR ANOTHER RATE HIKE
“We don’t have any preset idea on how many months we would need (to gauge whether conditions for another rate hike could fall into place).”
PRICE FORECASTS
“Our price forecasts have been revised up significantly. This reflects our view that rising crude oil prices could temporarily push up prices for a wide range of goods and services. Underlying inflation still remains slightly below 2% and will gradually accelerate towards that level… As for medium- and long-term inflation expectations, that varies on which data you look at. But we can say it’s not completely anchored at 2% and tends to fluctuate.”
TUESDAY’S DECISION
“Our decision today is based on the view that central banks should look through temporary supply shock-driven inflation. But if such shock brings about second-round effects on underlying inflation, we must raise interest rates.”
INFLATION
“Headline inflation may rise rather sharply for the time being but that doesn’t mean underlying inflation will heighten immediately. With companies becoming more keen to raise wages and prices, however, we must guide policy appropriately, so that medium- and long-term inflation expectations heighten clearly and lead to an overshoot in underlying inflation.”
(Reporting by Leika Kihara; Editing by Subhranshu Sahu)
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