BOJ Minutes Show Hawkish Shift as Some Members See Faster Rate Hikes

Hawkish views have surfaced inside the Bank of Japan, with some policymakers indicating the pace of benchmark rate hikes could exceed market expectations.

Bloomberg reported on August 9 that a summary of opinions from the BOJ's July 30-31 monetary policy meeting showed one board member saying upside inflation risks warranted greater attention than before, with core consumer price index growth nearing 2%. The member added that the policy rate could rise faster than markets expect.

Another member said the BOJ needs to show its determination to prevent inflation from overshooting as global central banks enter a rate-hike phase. The member also argued that the bank should consider a larger rate increase if needed.

The meeting also produced views that the BOJ should respond flexibly rather than commit to a fixed timetable for raising rates. Policymakers said they should take into account overseas financial markets, exchange rates, Middle East tensions and demand related to artificial intelligence.

The BOJ kept its benchmark rate unchanged at 1% at the meeting, but signaled it could deliver another rate hike as early as September after closely assessing the impact of yen weakness on prices and the broader economy.

Markets are already treating another rate increase this year as all but certain. Overnight swaps are pricing in about a 67% chance of a September hike and a 96% chance of a move by October.

The yen's recent slide to its weakest level against the dollar in 40 years has also fueled expectations for an earlier rate increase. Bloomberg said the BOJ was also monitoring Japan's foreign-exchange intervention to support the yen, along with joint intervention by the U.S., after the last meeting.