Hawks and doves clashed in the Bank of Japan's summary of its September meeting, while comments indicating government involvement were also reported. The yen fell to the ¥158 range as the currency weakened, increasing uncertainty over the outlook for the timing of future rate hikes.
The Bank of Japan's release of the minutes summary from its September meeting showed that several Policy Board members believed monetary tightening needed to continue even after the September rate hike. One member said the pace of rate hikes should be accelerated if signs emerged of prices rising more than expected, while another argued that bringing the policy rate relatively quickly toward its target level would contribute to economic stability.
However, most members were reportedly in agreement that inflationary pressure was building and that additional rate hikes were necessary, with some also pointing out that underlying inflation was at or near the 2% range. Some members expressed the view that there was no need to hurry, but that rate hikes should proceed to contain price increases.
Market attention focused on comments by a Cabinet Office attendee, who urged an examination of the cumulative impact of past rate hikes and also mentioned the possibility that estimates of the neutral interest rate should be taken into account. The yen was rapidly sold from the day of the release and briefly moved past ¥158 to the dollar. The outlook for the timing of future rate hikes is expected to fluctuate depending on the course of coordination between the government and the Bank of Japan and on forthcoming economic data.
One factor behind the policy decision is that the policy rate is near the lower end of the Bank of Japan's range for the nominal neutral interest rate, and stronger pressure for rate hikes than at other central banks has been cited. The policy rate after the September hike is 1.25%, its highest level in 31 years. Attention is expected to shift to the data released before the October meeting and to clarifying coordination with the government.
While yen depreciation could affect corporate activity and price trends, some view the government's cautious stance as leaving room for future policy management. At the late stage of the Bank of Japan's policy normalization, the market will assess how to interpret the government's stance of trying to put the brakes on policy operations.