BOJ policymakers divided on future pace of rate hikes, July minutes show Reuters

By Leica Kihara

TOKYO (Reuters) – Bank of Japan policymakers were divided over how quickly the central bank should raise interest rates, minutes of the bank’s July meeting showed, underscoring uncertainty over when the next rise in borrowing costs .

At its July meeting, the BOJ raised short-term interest rates to 0.25 percent and unveiled a detailed plan to slow its massive bond buying, taking another step toward phasing out a decade of huge stimulus.

At least two of the nine-member board saw the possibility of raising rates further, with one saying the BOJ should raise borrowing costs in a “timely and gradual” manner to avoid being forced to do so quickly later, Thursday’s minutes said.

Another member said the BOJ must raise rates further once it is confirmed that firms are raising capital spending, wages and prices, according to the minutes.

Several others, however, cautioned against moving too quickly to phase out incentives.

“Normalizing monetary policy should not be an end in itself,” one member was quoted as saying, adding that the BOJ must monitor various risks and move carefully.

“The BOJ should avoid a situation where market expectations for future interest rate hikes rise excessively,” as inflation expectations were still not anchored to the 2 percent target and prices remained vulnerable to downside risks, said a another member.