(Bloomberg) -- Bank of Japan officials see weakness in consumer spending complicating their decision over whether to raise interest rates at a policy meeting next week, according to people familiar with the matter.
Some officials take the view that skipping a rate hike in July is an option to provide more time to examine incoming data to confirm if consumer spending will pick up as expected, the people said. Some of them hold the position that the BOJ should avoid giving the impression of being overly hawkish, they said.
At the same time, other officials are open to raising rates at the July meeting given that inflation remains broadly in line with forecasts, the people added. They assess the BOJ’s policy rate range of 0 to 0.1% to be very low and see a risk of missing an opportunity to hike rates given a lot of uncertainties going forward, the people said.
The officials are likely to wait until the last minute to finalize their decision after checking the latest data on markets and economic conditions at the gathering ending on July 31, according to the people.
The yen weakened after the news of differing views at the BOJ. The currency reached 156.96 against the dollar, compared with 156.58 immediately beforehand.
The central bank is also due to announce its plans for the reduction of its bond purchases. The central bank doesn’t intend to cause any major surprise, the people said.
Some BOJ officials are encouraged that market participants have a better understanding of the BOJ’s stance on cutting back its bond buying, the people said. In their view, many in the market initially thought only a very limited reduction was in the pipeline from the current monthly pace of ¥6 trillion ($38 billion), the people said.
BOJ officials are aware that many market participants now expect the pace of monthly purchases to be trimmed to ¥3 trillion in two years, according to the people.
Officials also expect the bank to step in should there be a drastic rise in bond yields, regardless of whether this commitment is written in the statement, the people said.
A majority of BOJ watchers expect the central bank to hold rates at this meeting as it’s seen as too much of a move to hike borrowing costs at the same time as cutting bond buying.
The third of analysts who do expect a rate hike cites the yen’s lingering weakness. The bank can’t afford to allow the currency to fall again due to inaction on rates, they indicated in a Bloomberg survey last month.
The government cut its growth forecast for this fiscal year ending in March 2025 to 0.9% due to weak consumer spending. The central bank is also likely to cut its growth projection to around 0.5% for this fiscal year from 0.8%, mainly because of a revision in gross domestic product data earlier this month, the people said.
GDP data shows that consumer spending has fallen in each of the four quarters to the end of March.
Officials see no need for a major change in their inflation projections next week, they said.
(Updates with market move)
©2024 Bloomberg L.P.
