Bank of Japan Minutes “Flying Eagle”: Most members believe interest rate hikes are needed in the near future, and the probability of interest rate hikes in December rises to 70%

The Zhitong Finance App learned that a summary of the minutes of the Bank of Japan's latest policy meeting shows that many members believe interest rate hikes are necessary in the near future, suggesting that interest rate hikes in December are very likely.

According to a summary of the minutes of the October 29-30 meeting released on Tuesday, one of the nine members said, “The central bank should decide on the next policy interest rate hike when possible without being overly cautious.”

After prices continued to rise, the Bank of Japan has accelerated the pace of interest rate hikes. Currently, market expectations generally revolve around a “quarterly rate hike.” Details of the summary of opinions released on Tuesday showed that councilors' confidence in raising interest rates again in December has increased.

The most critical change last month was that the Bank of Japan acknowledged for the first time that underlying inflation had reached that target for the first time since setting the target in 2013. This assessment weakens the rationale for maintaining an easing policy. The opinions of many members of the committee pointed out that it is necessary to raise policy interest rates to a neutral level — that is, a level that neither stimulates nor suppresses the economy.

A member of the committee said, “The underlying CPI inflation has reached 2%, and the central bank needs to raise the policy interest rate to a neutral level as soon as possible.”

Governor Kazuo Ueda hinted at a press conference after the meeting that there is a possibility that interest rates will be raised again in December. Although policymakers will keep a close eye on the recent decline in global stock markets caused by AI concerns, this summary is likely to reinforce market expectations for interest rate hikes at the end of the year — as the Bank of Japan's policy focus shifts from “driving up prices” to “stabilizing price trends.”

Japan's policy interest rate is currently 1.25%, the highest level in 30 years. Despite this, bank loans grew at a steady rate of 5.6% in October, according to data released separately by the Bank of Japan on Tuesday. This supports the Bank of Japan's judgment that the financial situation is still loose.

“The current situation is seen as a new stage, and the central bank needs to speed up the pace of raising policy interest rates to neutral interest rates,” said a member of the committee.

After raising interest rates last month, the Bank of Japan chose to suspend continuous rate hikes at this meeting. According to swap pricing, the bank is about 70% likely to raise interest rates again in December.

Another focus of market attention in this summary of minutes is the statement of government officials who regularly attend policy meetings. Minister of Economic Policy Minoru Kiuchi did not attend this time, and a Cabinet Office representative agreed with the Bank of Japan's views on the importance of stabilizing price trends.

This may reinforce the market's view that the government led by Prime Minister Takaichi Sanae will not block the next rate hike.