Deflationary memory constraints hinder interest rate hike pace, internal divisions within the Bank of Japan intensify.

Minutes of the September meeting of the Bank of Japan show that some members, when discussing the timing of a rate hike, pointed out that due to the country's long-standing struggle with deflation, policymakers need to maintain a cautious attitude. This position starkly contrasts with two members who called for a rate hike. The minutes, released on Wednesday, indicated, "A few members believe that when weighing the costs and benefits of waiting for policy adjustments, the fact that Japan has experienced long-term deflation must be taken into consideration." One member even stated, "The Bank of Japan's monetary policy needs special considerations different from other central banks - namely, stabilizing inflation expectations at 2%." The minutes revealed the intensity of the discussions at the September policy meeting. In this meeting, Governor Haruhiko Kuroda faced two votes opposing the decision to maintain the interest rate unchanged during his term for the first time. Although the overall tone of the meeting suggested the possibility of a rate hike in the short term, it also made clear that the experience of over a decade of deflation in Japan is causing some members to remain cautious while waiting for more data. With the next policy decision on December 19 approaching, as the Bank seeks to avoid causing any disruptions in the financial markets, observers of the Bank of Japan will closely monitor the language used by the authorities when communicating the possibility of a rate hike. One member bluntly stated, "Although the conditions for a rate hike are gradually being met, it should not be implemented at this moment - as it could result in unexpected shocks to the market." Prior to the release of the minutes, the Bank of Japan's Policy Board voted last week by a 7-2 margin to keep the interest rate unchanged at 0.5%. Dissenting members Takashi Nakamichi and Takahiro Sekine have now voiced their call for a rate hike for the second time in a row at the meetings. In his remarks after the October policy meeting, Governor Kuroda gave the clearest hint to date: the Bank may raise the borrowing cost as early as December. He emphasized the need to study the initial momentum of wage growth next year - rather than waiting until March for the final results to be revealed. Last month, Japan's largest labor union announced that it will seek a wage increase of over 5% for the third consecutive year in the annual labor negotiations starting at the end of the year. Kuroda may be waiting for initial signals from businesses regarding their willingness to adjust wages. While Japanese exporters are benefiting from the historically low value of the yen, they also face pressure from tariffs on exports to the US. A recent survey shows that almost all economists predict that the Bank of Japan will raise the benchmark interest rate before January next year, with half of them expecting this action to occur in December.