Japan's Rate Hike Path Clouded by Cautious Stance in Sep Minutes
The minutes from the Bank of Japan's September meeting revealed that policymakers discussed the necessity of a gradual interest rate hike due to anxious markets casting a shadow over the outlook, which reduced the likelihood of a rate hike in the near term. The summary also indicated that the Federal Reserve's decision to significantly lower borrowing costs a day before the Bank of Japan's September 19-20 meeting intensified concerns about the U.S. economic outlook.
The summary quoted a member as saying, "The uncertainty surrounding the U.S. economy and the pace of the Federal Reserve's rate cuts has increased. It should be noted that these factors could have a negative impact on the yen exchange rate and Japanese corporate profits."
The minutes showed that even those who supported future rate hikes called for patience in their actions, which was in stark contrast to the previous meeting in July. At that time, many of the nine committee members voted in favor of a rate hike to guard against the risk of excessive inflation.
Another member stated, "I still believe that it is desirable to raise interest rates without spending too much time if it is confirmed that our expectations will not be significantly lowered." However, the member emphasized that raising rates should not be the goal itself, calling for waiting for the "appropriate" timing to push up borrowing costs.
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The summary did not disclose the names of the board members who made the comments.
A third perspective argued that, given the uncertainties in the economy and markets, it would be inadvisable for the Bank of Japan to raise rates further at this time, as doing so might signal that the central bank is shifting towards a comprehensive monetary tightening cycle.
"The uncertainty surrounding overseas economies has intensified. We should closely monitor developments overseas and in the markets for the time being," a fourth opinion indicated, adding that rate hikes could be delayed until this uncertainty subsides.
At the September meeting, the Bank of Japan kept short-term interest rates unchanged at 0.25%. The bank's governor, Kazuo Ueda, stated that the institution has the capacity to take time to focus on the impact of global economic uncertainties, indicating that it is not in a hurry to further raise borrowing costs.
Analysts at SMBC Nikko Securities wrote in a research report: "In contrast to the optimistic economic outlook in July, which emphasized the risks of upward inflation and called for further rate hikes with a clear majority, there was a significant number of cautious views on the outlook in September."Analysts have stated: "Given that numerous perspectives are calling for a careful examination of the risks associated with economic downturns, it is difficult to predict that the Bank of Japan will raise interest rates in the near term." They anticipate that the next rate hike will occur in January of next year.
The Bank of Japan concluded its negative interest rate policy in March and increased short-term borrowing costs to 0.25% in July, as they believe that Japan is making progress towards achieving its 2% inflation target on a sustainable basis.
The July rate hike and the hawkish rhetoric of Bank of Japan Governor Haruhiko Kuroda, coupled with weak U.S. employment market data, triggered a surge in the yen and a significant drop in the stock market in early August. Since then, Bank of Japan policymakers have been emphasizing the need to consider the impact of market fluctuations on the economy.
The Bank of Japan's next interest rate assessment will take place on October 30th and 31st, at which time the board will also receive newly published quarterly economic growth and price expectations. Another meeting is scheduled for December.
The majority of analysts surveyed from September 4th to 12th expect that the Bank of Japan will raise interest rates again before the end of the year.
A member, as quoted in the minutes, stated, "When implementing monetary policy, it is necessary to appropriately consider the downside risks to the Japanese economy and to closely monitor the data," highlighting a shift in the Bank of Japan's focus from the risks of overshoot inflation to supporting a fragile economic recovery.
The minutes revealed that another member indicated that the yen's significant reversal from its past weakness could harm exports and make manufacturers reluctant to raise wages.
Economic data suggests that the economy will continue to recover moderately, with strong corporate profits supporting capital expenditure.
The Bank of Japan's "Tankan" survey released on Tuesday showed that, despite the adverse effects of weak global demand, confidence among large manufacturers remained stable in the three months ending in September.
A member quoted in the September minutes said, "As for the next rate hike, I am paying attention to the development of the Consumer Price Index, the momentum of wage negotiations next year, and the development of the U.S. economy."
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