BOJ Minutes Show Hawkish Tilt as Some Officials See Faster Rate Hikes

Some Bank of Japan officials see scope for the central bank to raise interest rates faster than markets expect, in a hawkish signal from inside the board.

Bloomberg reported on August 9 that a summary of opinions from the BOJ's July 30-31 monetary policy meeting showed one member saying upside inflation risks deserve more attention than before, with core consumer price inflation nearing 2%. That member added that the pace of policy rate increases could exceed market expectations.

Another member said the BOJ needs to demonstrate its determination to prevent inflation from overshooting as global central banks enter tightening phases. The member also argued that the bank should consider a larger rate increase if necessary.

The meeting also brought calls for flexibility over the timing of any rate hike. Rather than fixing a schedule, policymakers said the BOJ should respond by weighing overseas financial markets, exchange rates, developments in the Middle East and demand related to artificial intelligence.

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

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

The yen's recent slide to its weakest level against the dollar in 40 years has also fueled expectations for an earlier move. Bloomberg said the BOJ was also monitoring Japan's currency-market intervention to support the yen after the meeting, as well as subsequent joint intervention by the US.