Major news! The Bank of Japan does not consider the July rate hike as policy tightening, with most members insisting on a loose framework

According to the latest information from the Smart Finance app, the minutes of the Bank of Japan's monetary policy meeting on July 31, released on Thursday, show that the central bank policymakers still insist that the framework of Japan's monetary policy will remain accommodative, even though they have made a slight rate hike. According to the minutes released on Thursday, one of the nine members of the Monetary Policy Committee stated: "It should be noted that raising the benchmark interest rate at a moderate pace means adjusting the degree of monetary accommodation based on potential inflation, which will not lead to the so-called tightening effect of monetary policy."

At the monetary policy meeting on July 31, the Bank of Japan unexpectedly raised the benchmark interest rate from 0%-0.1% to 0.25%, and also announced a plan to halve monthly bond purchases until the first quarter of 2026. After the meeting, Bank of Japan Governor Haruhiko Kuroda stated that if economic growth and inflation trends align with their forecasts, the Bank of Japan will further raise interest rates, which has led some analysts to perceive a hawkish policy stance. However, based on the latest meeting minutes, members of the policy committee generally believe that monetary policy will remain accommodative.

The recent actions of the Bank of Japan have been stirring global investors' nerves. Since July 31, the rate hike by the Bank of Japan has led to a significant appreciation of the yen, triggering massive unwinding of yen-funded carry trades, and the expectations of a rate hike by the Bank of Japan have caused unprecedented negative reactions in global markets on Monday, with the Bank of Japan being seen by some investors as the instigator of a "Black Monday" in global stock markets.

Market participants believe that the Federal Reserve's rate cut will be much larger than previously expected, and with the heightened expectations of a rate hike by the Bank of Japan, the recent rapid appreciation of the yen has prompted traders to quickly unwind their once highly popular yen-funded carry trade positions. This has forced some traders to sell off large quantities of high-liquidity stocks such as U.S. tech stocks to offset the huge losses incurred from borrowing yen, leading the entire financial market into a vicious cycle of selling risk assets on Monday.

After the unexpected dovish comments from the Bank of Japan's Deputy Governor, Asian stock markets turned from a weak decline to a sharp rise on Wednesday, with significant rebounds for two consecutive days. The MSCI Asia-Pacific Index surged by as much as 1.8%, and the Japanese stock market continued its sharp rise on Wednesday following the violent surge on Tuesday. The TOPIX index in Japan rose by 4.3% at one point, the Nikkei 225 index rose by over 3% at one point, and ultimately on Wednesday, it almost recovered from the drastic decline seen on "Black Monday". Benchmark stock indices in South Korea and Taiwan also saw significant gains, with the latter achieving its largest single-day increase since May 2021.

Some members indicated that Japanese economic growth and private consumption data remain weak

According to the latest meeting minutes, another member of the Monetary Policy Committee emphasized that even if the Bank of Japan chooses to raise interest rates, real interest rates will still be far below the neutral rate, indicating that overall policy continuity will remain unchanged. "As the expected neutral rate level seems to be at least around 1%, in order to avoid a rapid increase in policy rates, the central bank needs to timely and gradually raise policy rates," a committee member stated.

In the days following the rapid appreciation of the yen, the Japanese stock market experienced significant declines as traders expected the yield differentials and interest rate differentials between the U.S. and Japan to continue narrowing. However, on Wednesday, Bank of Japan Deputy Governor Masayoshi Amamiya unexpectedly took a dovish stance, stating that in the face of global financial market instability, the Bank of Japan may not continue to raise interest rates, a statement that significantly boosted the stock market and led to a sharp decline in the yen exchange rate During the meeting summary session, some committee members called for a relatively cautious approach to interest rate policy while the Japanese economy remains fragile. The vote on raising interest rates resulted in 7 in favor and 2 against, with Policy Committee members Toyoaki Nakamura and Asahi Noguchi voting against. However, the policy summary did not specify what these voting members specifically said.

One member stated in the meeting minutes: "It is necessary to more carefully evaluate the improvement trend of the Japanese economy as wages rise based on relevant data, as many data indicate a clear softening trend in economic growth rates and data such as private consumption."

Another member in the meeting minutes expressed opposition to raising rates, citing economic indicators showing significant weakness in the Japanese economy. "There is currently little data to confirm a sustainable growth trend in the Japanese economy," a committee member said. "Therefore, I oppose raising the policy rate."

Side effects of the Bank of Japan's large holdings of government bonds are difficult to eliminate

Regarding reducing the scale of the Bank of Japan's monthly purchases of Japanese government debt, a member stated that it may take a long time for the Bank of Japan to normalize its balance sheet, and the side effects of holding a large amount of Japanese government debt may persist.

Japanese Finance Minister Toshimitsu Suzuki stated at a press conference on Thursday that various factors are driving global financial market trends, with high-frequency algorithmic trend trading being one of the potential factors contributing to recent volatility in the Japanese stock market, which cannot be ruled out.

Suzuki also mentioned that the Japanese Ministry of Finance is closely monitoring market volatility, but "has not taken any specific actions yet." The senior official of the Ministry of Finance expressed support for the Bank of Japan's policies and stated that the Bank of Japan should actively decide on specific steps regarding monetary policy