Summary of Opinions from the Bank of Japan's September Meeting Sounds Hawkish: Most Members Advocate Continued Rate Hikes, Some Call for Accelerating the Pace

Summary of Opinions from the Bank of Japan's September Meeting Sounds Hawkish: Most Members Advocate Continued Rate Hikes, Some Call for Accelerating the Pace The summary of opinions from the Bank of Japan's September meeting showed that some policymakers see a need to accelerate the pace of rate hikes, or move interest rates closer to the central bank's "neutral" level as soon as possible, raising the possibility of further increases. Most opinions held that amid rising inflationary pressure, it is necessary to continue raising borrowing costs after the September hike. One member was quoted as saying: "If signs of upward deviation in prices are observed, the central bank will need to accelerate the pace of rate hikes." Another opinion stated: "It is desirable for the central bank to raise the policy interest rate to roughly its neutral level relatively quickly," so as to leave room to respond to unexpected economic developments. These opinions highlight the committee's growing concern about inflation risks and reinforce the market's mainstream expectation of another rate hike this year. One member said: "Given the latest developments, we must consider the prospect that oil prices may remain high," suggesting vigilance over the lingering impact of the Middle East conflict. At the September meeting, the Bank of Japan raised interest rates to a 31-year high of 1.25%, with the governor hinting at a new phase focused on preventing inflation overshooting, opening the door to further rate hikes. Several opinions noted that underlying inflation has reached or is close to the central bank's 2% target. One member said that while the central bank need not act hastily, it should raise rates to prevent prices from rising excessively and persistently, as underlying inflation is expected to reach 2% soon. Many analysts expect the Bank of Japan to raise rates again in October or December. As U.S. inflation data came in below expectations, the outlook for U.S. rate hikes has weakened, which may ease pressure on the Bank of Japan to raise rates this month to avoid an unwanted decline in the yen that would push up import costs. Nevertheless, the Bank of Japan faces greater pressure to raise rates than other central banks, because its policy rate remains near the bottom of the estimated range for Japan's nominal neutral rate of 1.1% to 2.5%, the level at which growth is neither cooled nor overheated. One member said that given significant upside price risks, the central bank should "continue to act in a timely manner, without being overly cautious" in raising rates, adding that analysis of neutral rate estimates should be strengthened. As investors reduced bets that the Bank of Japan might raise rates for a second straight time in October, the dollar rose to about 157.87 yen after the summary was released. Resistance to Rate Hikes However, not everyone believes the conditions for a rate hike are ripe. Two dovish members of the nine-person committee, Toichiro Asada and Ayano Sato, dissented from the September rate hike decision. The summary contains some opinions that may have come from them, warning that weak consumption and sluggish growth in services inflation are reasons to keep policy unchanged. The summary showed that a representative of the Cabinet Office also urged the Bank of Japan at the meeting to "carefully examine the cumulative effects of past rate hikes," indicating concern that higher interest rates could hit the economy. The representative was quoted as saying: "Looking ahead, it may be necessary for the central bank to consider its neutral rate estimate," and urged caution on further rate hikes. Although the summary did not disclose the identities of those who commented, Economy Minister Minoru Kiuchi attended the September meeting on behalf of the Cabinet Office. Kiuchi is seen as a reflationist aide to Prime Minister Sanae Takaichi, who herself is cautious about Bank of Japan rate hikes because they could raise the financing costs of her ambitious spending plans.