PiCK

Summary

  • The Bank of Japan said officials had raised the need for an additional rate hike and a prompt increase in the benchmark rate.
  • Some members said monetary policy normalization and a move to a neutral rate level were needed because underlying inflation has reached 2%.
  • The interest-rate swaps market is pricing in about a 70% chance that the BOJ will carry out a benchmark rate hike in December.

Forecast Trend Report by Period

Bank of Japan officials are increasingly making the case for another interest-rate hike soon as inflation continues to gain momentum.

Bloomberg reported on November 9 that several board members stressed the need for a prompt increase in the benchmark rate in a summary of opinions from the BOJ’s October 29-30 monetary policy meeting released that day. One member said the central bank should move ahead with its next hike when conditions permit rather than be excessively cautious.

The BOJ said last month that underlying inflation had reached 2% for the first time since it adopted its price-stability target in 2013. Against that backdrop, some members argued that monetary policy should be gradually normalized and the benchmark rate raised to a neutral level.

The neutral rate is a level that neither stimulates nor restrains economic activity. One board member argued that the policy rate should be lifted to neutral as soon as possible because underlying consumer inflation has already reached 2%.

The BOJ raised its benchmark rate in September but held off on another increase at its October meeting. Instead of delivering back-to-back hikes, it opted to further assess inflation and economic conditions.

Still, signs of support for an early move at the meeting have sharpened market focus on the possibility of additional tightening before year-end. In the interest-rate swaps market, traders are pricing in roughly a 70% chance that the BOJ will raise its benchmark rate in December.

Suehyeon Lee