The Bank of Japan’s September meeting minutes, released on Thursday, November 5, show a board that voted 7 to 2 to raise the policy rate from 1.00 percent to 1.25 percent, a 31 year high, and then debated how much further and how fast to go. Asada Toichiro and Sato Ayano dissented from the increase. One member was quoted in the minutes saying that if signs of an upward deviation in prices were observed, the BoJ would need to accelerate the pace of rate hikes, while another cautioned against hasty action but said policy should be guided to prevent excessive and persistent price rises.
The framing is the news. The minutes record a shift in the board’s focus from encouraging underlying inflation toward the 2 percent target to preventing it from overshooting that target, with members expecting consumer inflation to accelerate from the autumn as food price rises broaden. Energy costs, the weak yen and artificial intelligence related demand all featured as upside risks, and the board discussed market pricing of the terminal rate, noting that a forward OIS measure had moved above 2 percent. Bank staff estimates place the nominal neutral rate between 1.1 percent and 2.5 percent, a range the current 1.25 percent policy rate has only just entered.
Context matters for how much signal to take. The minutes describe the September meeting, and the board has since met on October 29 to 30 and kept the rate at 1.25 percent while signalling vigilance on inflation. They are therefore a record of the tightening bias rather than a fresh decision, but they are the fullest account yet of why the bias exists.
A Reuters poll cited alongside the minutes shows many analysts projecting a rise to 1.50 percent at the December meeting. Governor Kazuo Ueda speaks at an IMF seminar in Washington on Friday, November 6, which is the next chance for the board’s leadership to confirm or soften the path the minutes describe.