BOJ Summary Indicates Chance of December Interest Rate Hike

(Bloomberg) — A record of policy discussions from the Bank of Japan’s latest board meeting signaled that the next interest rate increase could come as soon as December, matching the expectations of many market participants.

“It is likely that conditions for taking a further step toward the normalization of the policy interest rate have almost been met,” one of nine board members said while noting the need to examine underlying inflation, a summary of opinions released Monday showed. The board voted 7-2 to hold settings steady at the two-day gathering that ended on Oct. 30.

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The summary suggests the nine-member board is increasingly of the view that the timing for the next rate hike is nearing, consistent with Governor Kazuo Ueda’s recent signals that the move could come in coming months. With almost all BOJ watchers expecting higher borrowing costs by January, the focus is now becoming whether the move comes on Dec. 19 or the following month.

The yen was trading at around 153.80 against the dollar after the release of the summary. It hit a fresh eight-month low of 154.48 last week.

The summary also reflects a shift in the board’s focus to the next round of annual wage talks beginning later this year, with one member citing the need to examine the “initial” momentum after uncertainty related to US tariffs receded. That’s in line with Ueda’s remarks at last month’s post-meeting press briefing, and it means authorities may have the confidence they need by the end of this year, or early next year, before unions and employers release an early tally in March.

“If there is no negative news regarding the global economy or financial markets, and if it is confirmed that firms’ active wage-setting behavior will be maintained, this is likely to lead to a policy change,” one BOJ board member said.

There has been little sign of a dramatic downshift in momentum for wage hikes despite US tariffs. Japan’s biggest umbrella group of labor unions last month said it’s setting the same target for the coming round that it had a year ago, which ultimately resulted in the best outcome in 34 years.

The October gathering was the first policy meeting after Sanae Takaichi, known as a monetary easing advocate, became prime minister on Oct. 21. Many economists viewed that development as one that would lead to a hold on rates as authorities took politics into consideration. They are watching whether she might try to stop a rate hike in coming months.

Japan’s new Fiscal and Economic Policy Minister Minoru Kiuchi attended the October meeting as a government representative. An opinion by a cabinet official said that the government expects the BOJ’s close cooperation in the spirit of the BOJ Act, the summary, which never discloses the names of speakers, showed.

The BOJ kept its policy rate unchanged at 0.5% at the October gathering, where Ueda faced two dissenters calling for a rate increase at the second straight gathering.

About half of BOJ watchers expect the bank to raise borrowing costs next month, while around 98% forecast the move coming no later than January, according to a Bloomberg survey last month.

“While uncertainties remain, the bank will be in a situation where it should adjust the policy interest rate depending on” the economic outlook and the likelihood of achieving it, one member said.

(Updates with more details.)

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