According to meeting minutes from the Bank of Japan's latest policy gathering, a number of members believed a near-term rate hike was necessary, suggesting a strong likelihood of an increase in December.
Based on the summary of the October 29-30 meeting released on Tuesday, one of the nine members stated: "The central bank should decide on the next policy rate hike at a viable time without being excessively cautious." After sustained price increases, the Bank of Japan has accelerated the pace of rate hikes, and current market expectations broadly revolve around a "quarterly rate hike" rhythm.
Details from the opinion summary released on Tuesday showed that members' confidence in another rate hike in December had strengthened. The most critical change last month was that the Bank of Japan acknowledged for the first time that underlying inflation had reached its target for the first time since the target was set in 2013. This assessment weakened the case for maintaining loose policy, and opinions from multiple members pointed to the need to raise the policy rate to a neutral level—one that neither stimulates nor restrains the economy.
One member said, "Underlying CPI inflation has reached 2%, and the central bank needs to raise the policy rate to a neutral level as soon as possible." Governor Kazuo Ueda hinted at a post-meeting press conference that another rate hike was possible in December.
Although policymakers will closely monitor the recent global stock market decline triggered by AI concerns, this summary of minutes will likely reinforce market expectations for a year-end rate hike—as the Bank of Japan's policy focus shifts from "pushing up prices" to "stabilizing price trends."
Japan's policy rate currently stands at 1.25%, the highest level in thirty years. Nevertheless, according to data separately released by the Bank of Japan on Tuesday, bank lending in October still grew at a solid pace of 5.6%. This supports the Bank of Japan's judgment that financial conditions remain accommodative.
"The current situation is viewed as a new phase, and the central bank needs to accelerate the pace of raising the policy rate to the neutral rate," one member said. After last month's rate hike, the Bank of Japan chose to pause consecutive increases at this meeting. Swap contract pricing shows that the bank's probability of another rate hike in December is about 70%.
Another market focus of this summary of minutes was the remarks of government officials who regularly attend policy meetings. Economic Policy Minister Minoru Kiuchi did not attend this time, while a Cabinet Office representative agreed with the Bank of Japan's view on the importance of stabilizing price trends. This may reinforce the market view that the government led by Prime Minister Sanae Takaichi will not block the next rate hike.
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