The Summary was closely watched in financial markets as investors sought to assess whether the Bank of Japan might adopt an even more aggressive tightening stance, including back-to-back rate hikes or a larger 50bp move.
The Summary contained numerous comments in support of further rate hikes. However, there were no opinions advocating either another hike at the next meeting in October or a 50bp increase. In that sense, it was less hawkish than expected.
I see a low likelihood of either an October hike or a 50bp move. The September Tankan released on October 1 appears to provide support for this view, and the OIS market is currently pricing in only a 20% or so probability of a 25bp increase at the October meeting.
Also worth noting in the Summary were the comments from representatives of the Ministry of Finance and the Cabinet Office. Both signaled reservations about further tightening by asking the Bank to provide adequate explanations for its rate hikes and to carefully assess their effects.
Before the September meeting, the Trump administration had called for the BOJ to raise interest rates to stem the weakness in the yen. This seemed to put a damper on efforts by the Japanese government to stand in the way of additional rate hikes. However, the Summary suggests the government is still trying to discourage further tightening.
Citing the fact that the policy rate has entered the BOJ's estimated neutral range of around 1.0–2.5%, the Cabinet Office representative implicitly urged a cautious stance on further hikes. Meanwhile, Policy Board members raised the possibility that the neutral rate could be higher than current estimates and called for a flexible approach to policy that was not constrained by those numbers. This suggests that estimates of the neutral rate have become a key point of contention between the BOJ and the government with respect to future policy conduct.
The latest Summary of Opinions and the September Tankan both suggest the central bank is unlikely to deliver either back-to-back rate hikes or a larger 50bp move. Instead, I think there is a possibility of a 25bp hike at the December meeting, roughly three months after the last one—broadly the same interval as the September hike.
At the same time, corporate price hikes prompted by the surge in oil prices appear to have passed their peak. If the yen and oil prices remain around current levels, I expect the Bank to widen the interval between rate hikes starting next year.
Profile
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Takahide KiuchiPortraits of Takahide Kiuchi
Executive Economist
Takahide Kiuchi started his career as an economist in 1987, as he joined Nomura Research Institute. His first assignment was research and forecast of Japanese economy. In 1990, he joined Nomura Research Institute Deutschland as an economist of German and European economy. In 1996, he started covering US economy in New York Office. He transferred to Nomura Securities in 2004, and four years later, he was assigned to Head of Economic Research Department and Chief Economist in 2007. He was in charge of Japanese Economy in Global Research Team. In 2012, He was nominated by Cabinet and approved by Diet as Member of the Policy Board, the committee of the highest decision making in Bank of Japan. He implemented decisions on the Bank’s important policies and operations including monetary policy for five years.
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