The road to Japan's interest rate hike is overshadowed! Minutes from September show policymakers leaning towards caution, focusing on market sentiment impact

Intellasia noticed that the minutes of the September meeting of the Bank of Japan showed that policymakers discussed the necessity of a slow rate hike due to the tense and uncertain market casting a shadow over the outlook, reducing the likelihood of a rate hike in the near term.

The summary also indicated that the Federal Reserve's decision to significantly lower borrowing costs on the day before the Bank of Japan's September 19-20 meeting intensified concerns about the US economic outlook.

Quoting a member, the summary stated, "The uncertainty surrounding the US economy and the pace of rate cuts by the Federal Reserve has increased. It should be noted that these factors may have a negative impact on the yen exchange rate and Japanese corporate profits."

The minutes revealed that even those in favor of future rate hikes called for patience in taking action, contrasting sharply with the previous meeting in July. At that time, many of the nine members voted in favor of a rate hike to guard against the risk of excessive inflation.

Another member stated, "I still believe that if it is confirmed that our expectations will not be significantly lowered, it is advisable to raise rates without spending too much time. However, rate hikes should not be the goal in themselves," the member said, calling for waiting for the "appropriate" time to raise borrowing costs.

The summary did not specify the name of the board member who made the comments.

A third view argued that given the economic and market uncertainties, it is inadvisable for the Bank of Japan to further raise rates at this time, as doing so may indicate a shift towards a comprehensive monetary tightening cycle.

"Uncertainties in the overseas economy have intensified. We should temporarily focus on developments overseas and in the market," the fourth view stated, adding that rate hikes could wait until this uncertainty diminishes.

At the September meeting, the Bank of Japan kept short-term rates unchanged at 0.25%, with Governor Haruhiko Kuroda stating that the bank has the ability to take time to monitor the impact of global economic uncertainties, indicating that it is not in a hurry to further raise borrowing costs.

Analysts at Mitsubishi UFJ Morgan Stanley Securities wrote in a research report, "In contrast to the majority of optimistic views on the economy, emphasis on the risks of rising inflation, and calls for further rate hikes in July, there was a considerable amount of caution about the outlook in September."

Analysts stated, "As many views call for a careful examination of the downside risks to the economy, it is difficult to predict when the Bank of Japan will raise rates in the near future." They expect the next rate hike to be in January next year.

The Bank of Japan ended negative interest rates in March and raised short-term borrowing costs to 0.25% in July, believing that Japan is making progress towards sustainably achieving its 2% inflation target.

The rate hike in July and Governor Haruhiko Kuroda's strong statements, coupled with weak US employment data, triggered a surge in the yen and a sharp drop in the stock market in early August. Since then, Bank of Japan policymakers have consistently emphasized the need to consider the impact of market volatility on the economy.

The Bank of Japan's next rate assessment will be held on October 30-31, when the board will also receive newly released quarterly economic growth and price expectations. Another meeting will be held in December.

A majority of analysts surveyed from September 4-12 expect the Bank of Japan to raise rates again before the end of the year A committee member stated in the minutes, "When implementing monetary policy, it is necessary to appropriately consider the downside risks of the Japanese economy and carefully monitor data," highlighting that the focus of the Bank of Japan is shifting from the risk of excessive inflation to supporting a fragile economic recovery.

The minutes of the meeting show that another member expressed concerns that the significant reversal of the yen from its previous weakness could harm exports and discourage manufacturers from raising wages.

The resignation of Japanese Prime Minister Fumio Kishida has increased uncertainty about the Bank of Japan's efforts to raise interest rates.

Prime Minister Fumio Kishida, who was appointed as the new Prime Minister on Tuesday, stated on Sunday that Japan's monetary policy must remain accommodative, which is a trend.

Economic data indicates that the economy will continue to recover moderately, with strong corporate profits supporting capital expenditure.

The "Tankan" survey released by the Bank of Japan on Tuesday showed that despite the adverse impact of weak global demand, the confidence of large manufacturers remained stable in the three months ending in September.

The minutes from September quoted a committee member as saying, "As for the next rate hike, I am focusing on the development of the Consumer Price Index, the momentum of wage negotiations next year, and the development of the U.S. economy."