By Leika Kihara
TOKYO, Nov 10 (Reuters) – Some Bank of Japan policymakers called for speeding up the pace of interest rate hikes as underlying inflation reached the central bank’s 2% target, a summary of opinions from its October meeting showed, bolstering the case for near-term tightening.
The central bank should deliver the next rate hike “without becoming overly cautious,” one member was quoted as saying, signalling the chance of an increase at its next meeting in December.
But several members warned against being too hasty due to soft consumption and uncertainty about the sustainability of AI demand, the summary showed on Tuesday, exposing a rift that could widen as the BOJ proceeds with further rate hikes.
“The effects of past rate hikes have yet to materialise and financial conditions remain accommodative,” one member was quoted as saying. “Japan is in a new phase where the BOJ needs to step up the pace of bringing its policy rate to neutral.”
Two other members called for raising the bank’s policy rate to a level that is deemed neutral to the economy soon.
One said the BOJ should act while gauging financial conditions “over the course of a few months” after each rate hike, the summary showed.
At the meeting on October 29 and 30, the BOJ kept its key rate at 1.25% but declared victory in its 14-year battle to hit its price target and flagged upside price risks, reinforcing its hawkish bias.
The central bank needed to scrutinise “a little more” the risks surrounding economic activity and prices, one member was quoted as saying, signalling scope for action in December.
While the next rate hike could cool business spending, it would improve the economy’s balance as a whole and would be unlikely to hurt consumption, another opinion showed.
With stubbornly high energy costs and rising import prices from a weak yen adding to inflationary pressures, the BOJ raised rates in September after delivering a hike in June – a shorter interval than the roughly twice-a-year hikes in 2024 and 2025.
The BOJ’s policy rate thus moved within the range of 1.1% to 2.5% that its staff estimated as Japan’s neutral rate, or a level that neither cools nor overheats the economy – drawing market attention to how far it could eventually hike rates.
While hawkish board member Naoki Tamura has said Japan’s neutral rate was likely around 2%, others have refrained from offering specific projections.
Analysts polled by Reuters expect the BOJ to raise its policy rate to 1.5% in December and stick to a quarterly pace of hikes. Most of them view the terminal rate as 1.75% or 2%.
GAP ON WAGE VIEW
At the October meeting, some members called for vigilance on how the BOJ’s past rate hikes could affect growth, a key factor in gauging how far its policy rate is from neutral.
“The BOJ must pay due attention to the risk a future rate hike will weigh on the economy and push down underlying inflation” as it withdraws monetary support, one member said.
Some members also highlighted next year’s annual wage negotiations as key to whether Japan can sustain inflation around the BOJ’s target, the summary showed.
There were disagreements on the outlook. One member said there was a good chance wages would grow next year at levels consistent with the BOJ’s 2% target.
But another said next year’s wage growth was unlikely to rise significantly compared with this year, with little sign of second-round effects being exerted on wages, the summary showed.
The debate highlights the challenge Governor Kazuo Ueda faces in navigating a board split between hawks favouring faster rate hikes and doves wary of cooling growth. Two doves appointed by premier Sanae Takaichi dissented from the September rate hike.
In a sign of weakness in the economy, data released on Tuesday showed household spending fell more than expected in September due in part to poor weather conditions.
(Reporting by Leika Kihara; Editing by Tom Hogue, Christopher Cushing and Thomas Derpinghaus)
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