BOJ Debates Caution in Interest Rate Increases: Minutes from October Meeting

By Leika Kihara

TOKYO – The Bank of Japan (BOJ) convened in October and reached a consensus to continue raising interest rates if the economy aligns with their expectations. However, some policymakers emphasized the importance of exercising caution given the uncertainty surrounding U.S. economic policies, according to the minutes from the meeting.

This discussion underscores the significance of international economic risks, particularly those associated with the newly elected administration in the U.S., as a crucial factor influencing the timing of future rate hikes by the BOJ.

The meeting took place from October 30 to 31, prior to Donald Trump winning the U.S. presidential election on November 5. During this session, BOJ members expressed concerns about renewed market volatility and potential shifts in U.S. policy, which they deemed as substantial risks to Japan's economic outlook.

"We should closely monitor U.S. developments, especially those emerging after the presidential election, as we are already positioned to raise rates gradually," one member stated in the minutes.

Despite their worries over external threats, the board members maintained a positive outlook on domestic economic conditions. Several members indicated that rising wages would likely bolster consumer spending, helping Japan to achieve the BOJ's 2% inflation target sustainably.

"Wage growth is expected to remain robust during next year's spring negotiations between companies and labor unions," noted a few members.

During the October meeting, the BOJ opted to keep interest rates steady at 0.25%, while projecting that inflation would align with the 2% target in the coming years. This indicates the BOJ's intention to implement rate hikes in the near future.

While the board confirmed its plan to raise rates if economic and price forecasts were met, many members urged caution in light of increasing uncertainties. "We must proceed carefully with monetary policy due to the rising uncertainty both domestically and internationally," one member commented, explaining the decision to maintain the current rate in October.

Additionally, another member reminded the group that, given Japan's long-standing policy rate of not exceeding 0.5% for the past three decades, a careful approach is warranted.

During its subsequent meeting in December, the BOJ again kept rates unchanged, opting to wait for further data regarding wage growth and to gain clarity on the policies of then-president-elect Donald Trump.

The BOJ had previously ended its negative interest rate policy in March and raised its short-term policy target to 0.25% in July. The central bank has expressed its readiness to increase rates if wages and prices develop as anticipated.

According to a recent Reuters poll, all respondents expect the BOJ to raise rates to 0.50% by the end of March. However, opinions varied on whether this increase would occur in December, January, or March.

BOJ, economic, interest