(Bloomberg) — A summary of statements from the Bank of Japan’s July 31 board meeting shows that authorities expect monetary policy to remain loose even if interest rates are raised slightly.
“It should be noted that a moderate interest rate hike means an adjustment of the level of monetary policy support to underlying inflation, which will not have any monetary tightening effects,” one of the nine board members said, according to the summary published on Thursday.
At that meeting, the central bank raised its benchmark interest rate to 0.25% and announced plans to halve the pace of its monthly bond purchases by the first quarter of 2026. Governor Kazuo Ueda said after the meeting that the BOJ would raise interest rates further if growth and inflation trends developed in line with its forecasts, which some analysts viewed as belligerent.
Another comment stressed that real interest rates remained well below the neutral rate even after the hike, suggesting that overall policy continuity was intact. “As the level of the neutral rate appears to be at least around 1%, the Bank needs to raise the policy rate in a timely and gradual manner to avoid rapid increases in the policy rate,” said one member.
In the days following the rate hike, Japanese stock markets experienced massive swings along with the yen as traders expected a narrowing of the interest rate differential between the U.S. and Japan. On Wednesday, Vice Governor Shinichi Uchida said the BOJ would not raise interest rates if financial markets were unstable. That reassurance supported stock prices and sent the yen lower.
Japanese Finance Minister Shunichi Suzuki said at a press conference on Thursday that market movements were determined by various factors and that algorithmic trading could not be ruled out as a possible factor that had led to volatility in Japan’s stock markets in recent days.
Authorities are closely monitoring the volatility but are “not yet in a position to take concrete action,” Suzuki said.
The minister expressed his support for the central bank and said the BOJ should decide on concrete steps regarding monetary policy.
In the BOJ’s statement summary, some called for a cautious approach to interest rate policy at a time when the economy is still fragile. The vote for the rate hike ended 7-2, with board members Toyoaki Nakamura and Asahi Noguchi voting against. The summary does not say which board members said what.
“It is necessary to more accurately assess the improvement in the economic situation due to increasing wage increases using relevant data, as there are many data sets that show rather weak developments, for example in the economic growth rate and private consumption,” said one member.
Another member disagreed, citing weak economic indicators.
“There is currently little data to confirm sustainable growth in the Japanese economy,” said one member. “That is why I am against raising the key interest rate.”
Regarding the BOJ’s reduction in monthly government bond purchases, one member said it would take a long time to normalize the bank’s balance sheet and the side effects of its large bond holdings would likely linger for a long time.
– With support from Erica Yokoyama.
(Updated with comments from Finance Minister Suzuki starting in the sixth paragraph.)
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