The Bank of Japan (BoJ) released the Summary of Opinions from its September monetary policy meeting, revealing a range of views among members regarding future rate hikes. One member stated it is appropriate to keep raising rates in line with economic, price, and financial developments, while another emphasized the need to anchor underlying inflation near 2% and act nimbly to prevent inflation overshoot, especially considering FX market impacts [1]. Some members advocated for accelerating rate increases if inflation exceeds the target, and noted that most firms report the impact of past and further rate hikes is likely limited [1]. There was also mention that the terminal rate could exceed market expectations depending on overseas developments, though another member cautioned against rushing rate hikes, suggesting policy should be guided properly as underlying inflation is likely to hit 2% soon [1].
The BoJ raised its rate to 1.25% on September 18, with swaps pricing about a 36% chance of another hike on October 30 [2]. The gap between BoJ and Fed policy rates remains at least 2.5 points, with both central banks given roughly a one-in-three chance of hiking in October [2]. The Tankan survey of large manufacturers, released alongside the BoJ summary, showed sentiment rising for six straight quarters, reaching its highest level since March 2018 [1]. However, the Tankan Large Manufacturing Index for Q3 came in at 24, missing the market expectation of 25 but improving from the previous reading of 22 [3]. The Tankan Non-Manufacturing Index eased to 35 in Q3, below the consensus of 36 and the prior reading of 37 [3].
Market reaction to these developments was muted. The USD/JPY pair traded 0.03% higher at around 157.60 following the BoJ summary release [1], and 0.14% higher at around 157.50 after the Tankan survey results [3]. Softer US inflation temporarily pulled USD/JPY below 156.50, but it finished back just under 157.50, marking its fourth straight close on the 157.00 handle [2]. Technical analysis suggests resistance just under 158.00 and support at 156.00, with daily momentum indicating patience and the possibility of a retest of the 200-day average [2].
Forward-looking statements from BoJ members indicate a willingness to raise rates early to respond to unexpected economic and price changes, and some see significant upside risks to inflation [1]. The summary also notes that firm Tokyo prices could increase the odds of an October BoJ hike, with a strong payroll count in the US potentially lifting Fed hike odds as well [2]. Analysts suggest that a BoJ hike is more likely in December unless Tokyo's prices jump as forecast [2].
CONCLUSION
The Bank of Japan's September meeting summary and Tankan survey point to improving business sentiment and a cautious but potentially hawkish stance on rate hikes. Market reaction was limited, with USD/JPY remaining stable despite the news. The BoJ's forward guidance suggests rate hikes are possible if inflation trends higher, but the timing remains uncertain and dependent on upcoming economic data.