Bank of Japan hints at aggressive quantitative tightening in July

The Bank of Japan (BOJ) is indicating that its quantitative tightening (QT) plan in July may be more significant than anticipated by the markets.

There is a possibility that it could also be coupled with an interest rate hike as the bank gradually scales back its substantial monetary stimulus.

Recent hawkish signals underscore the challenges the central bank is confronting due to the yen’s recent decline, which could lead to inflation surpassing its two per cent target by increasing import expenses.

While the BOJ kept rates near zero this month, the meeting summary revealed internal discussions regarding the need for a timely hike to prevent inflationary pressures.

The July 30-31 meeting will be crucial for Japanese monetary policy. The BOJ is expected to reveal its plan for reducing its bond-buying programme and shrinking its $5 trillion balance sheet.

Governor Kazuo Ueda’s comments hinting at a sizeable cut to bond buying suggest a significant reduction to ensure markets move away from the yield curve control policy abandoned in March.

Attribution: Reuters