\n<\/p>\n
By Leika Kihara<\/p>\n
TOKYO, April 4 (Reuters) – The International Monetary Fund urged the Bank of Japan to continue raising interest rates, even as the Middle East war posed “significant new risks” \u200cto the country’s economic outlook.<\/p>\n
The proposal comes amid market expectations the BOJ will raise interest \u200crates as soon as April in the face of mounting inflationary pressure from the conflict-induced spike in oil prices, and higher \u200bimport costs blamed on the weak yen.<\/p>\n
While growth is expected to moderate, due partly to the Iran war, gradual wage gains will underpin consumption, the IMF said in a statement issued from Washington on Friday after the conclusion of its policy consultation with Japan.<\/p>\n
“Risks to the outlook and inflation are broadly balanced” with \u200cinflation expected to converge to the \u2060BOJ’s 2% target in 2027, the IMF said.<\/p>\n
In the statement, the IMF said its executive board commended Japan’s “strong economic resilience” to global shocks and agreed the BOJ \u2060was appropriately withdrawing monetary accommodation.<\/p>\n
“They noted that as underlying inflation converges toward the BOJ’s target, gradual rate hikes toward neutral should continue” in a flexible, well-communicated and data-dependent approach, the statement said.<\/p>\n
“Directors stressed the importance of maintaining \u200ba \u200bflexible exchange rate as a credible shock absorber,” it \u200badded.<\/p>\n
The BOJ ended a massive stimulus in \u200c2024 and raised interest rates several times, including in December, on the view that Japan was on the cusp of durably hitting its 2% inflation target.<\/p>\n
The central bank has stressed its readiness to keep raising rates on the expectation that underlying inflation will converge to its 2% target sometime from the second half of fiscal 2026 into fiscal 2027. Japan’s fiscal year starts in April.<\/p>\n
While rising oil prices hurt \u200cJapan’s import-reliant economy, BOJ policymakers have signalled their concern they \u200bwill add to inflationary pressures from years of steady wage \u200bgains and broader price increases.<\/p>\n
The BOJ’s slew \u200bof hawkish communication has prodded markets to price in a roughly 70% chance \u200cof a rate hike in April.<\/p>\n
The yen’s slide \u200btowards the key 160-per-dollar level \u200bhas also kept markets on alert for the chance of currency intervention by Japanese authorities.<\/p>\n
Finance Minister Satsuki Katayama issued a fresh warning against yen bears on Friday, saying Japan stood ready to \u200bact against speculative moves in \u200cthe currency market.<\/p>\n
“We’re ready to take all available means that are legally feasible, be it \u200bconventional or non-conventional,” she told an online programme on Friday evening.<\/p>\n
(Reporting by Leika Kihara; \u200bAdditional reporting by Yoshifumi Takemoto; Editing by Kate Mayberry)<\/p>\n<\/p><\/div>\n