BOJ Weighing Rate Hike

The Bank of Japan (BOJ) is likely to debate whether to raise interest rates when it meets this week and unveil a plan to roughly halve bond purchases in the coming years, signaling its resolve to steadily unwind its massive monetary stimulus, Leika Kihara and Takahiko Wada reported for Reuters.

Core inflation hit 2.6% in June, having exceeded the BOJ's target for well over two years, and workers' base pay rose by the most in three decades in May.

The rate decision will depend on how long the board members prefer to wait for clarity on whether consumption will recover and keep inflation stably around the bank's 2% target, said four people familiar with the BOJ's thinking.

Over three-quarters of economists polled by Reuters expect the central bank to stand pat this month and possibly next move in September or October, but sources suggested the outcome of the July 30-31 meeting was considerably less certain.

"The decision will be a close call and a hard one to make," one of the sources said, given uncertainty over the consumption outlook.

"It's really a judgment call, in terms of whether to act now or later this year," another person said. While the nine-member board broadly agrees on the need for a near-term rate hike, they said there is no consensus on whether it should happen next week or later in the year.

Core inflation hit 2.6% in June, having exceeded the BOJ's target for well over two years, and workers' base pay rose by the most in three decades in May, enough for hawks to argue that conditions are right to hike rates now.