BOJ debated mounting price risks even upon hiking rates in June, minutes show

By Leika Kihara

TOKYO, Aug 5 (Reuters) - Bank ‌of Japan policymakers ​debated mounting ​price risks that likely required more rate hikes even as they raised borrowing costs to a 31-year high in June, minutes of the meeting showed on Wednesday, highlighting the central ‌bank's increased focus on broadening inflation.

A few board members said consumer inflation will likely ⁠get a significant boost in the latter half of the current fiscal year as firms plan price hikes for a wide ‌range of goods, minutes of the ‌June meeting showed.

"Even if the Middle East conflict ends and crude oil prices decline, inflationary pressure would remain given the high costs of shipping and storage associated with the procurement of alternative source ​of supply," one member was quoted as saying.

The BOJ raised interest rates to a 31-year high of 1% at the June meeting as rising fuel costs from the Middle East conflict added to ⁠mounting inflationary pressures from a weak yen and tight job market.

The minutes also showed two board members calling for faster interest rate hikes ​to push the BOJ's policy rate closer to levels deemed neutral to the economy.

The debate highlights growing attention within the board to broadening price pressures that bolster ​the case for another rate hike as soon as September.

Wholesale ‌prices accelerated in June at the fastest pace in more than three years, with the producer price index surging 7.1%. Analysts expect such price pressures to push up ⁠core consumer inflation, which remained below the BOJ's 2% target in June due largely to the effect of government subsidies.

Most members said the pass-through from high oil prices had progressed at a relatively fast pace for business-to-business transactions, which ⁠could spread to consumer prices across a wide range of items, the minutes showed.

"Given this situation and how firms have ​become more active in raising prices, we must be more concerned about the risk of inflation accelerating further," they were quoted as saying.

Some members also said there was an increasing risk that more firms would start passing on not just ‌rising fuel costs but labour and shipping costs, thereby adding upward pressure on consumer inflation, the minutes said.

The board also discussed the BOJ's huge balance sheet ‌strategy, with one calling for reducing its size steadily to avoid side-effects caused by excessive supply of money, it ⁠showed.

At a subsequent meeting in July, the BOJ ‌kept interest rates steady but ​said future policy discussions would focus on upside price risks, signalling the chance of a rate hike as soon as September.

(Reporting by Leika Kihara; Editing by Jacqueline Wong and ‌Sam Holmes)

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