The Bank of Japan's minutes release a hawkish signal: inflation risks continue to accumulate and interest rates need to be raised at intervals of several months.

The Bank of Japan held a monetary policy meeting last week and decided to raise the policy interest rate to the highest level since 1995. The summary of the meeting on June 15th to 16th, released this Wednesday, shows that the central bank clearly signals the need for further raising the benchmark interest rate. The summary quoted a committee member's opinion: "Regarding the execution of future monetary policy, as core CPI inflation is gradually approaching 2%, and the overall financial environment is loose, the central bank should continue to raise policy rates according to changes in economic, price, and financial conditions." This is the position held by some of the nine committee members. Although last week was the first rate hike by the Bank of Japan since December last year, and at that time it had indicated its intention to continue pushing interest rates higher, this summary did not give a clear hint about the timing of the next rate hike. Nevertheless, this summary may further strengthen market expectations for another rate hike this year. The day after the decision was announced last week, a survey of economists showed that about 90% of respondents expect the central bank to take action again before December, with over one-third of them viewing October as the next potential adjustment window. Currently, economists expect the terminal rate of this rate hike cycle to reach 1.75%, higher than the 1.5% estimated at the beginning of the month. Although the summary did not disclose specific speakers, it indicated that some members - likely the hawkish Naoki Tamura or Hajime Takata - believe that after the latest hike to 1%, the Bank of Japan's interest rates are still far below those of major economies, so it is necessary to further raise rates in the coming months. The summary mentioned that one member stated: "The neutral rate level is estimated to be around 2%." And pointed out that "discussing the further increase of policy rates at appropriate intervals is a preferable approach." Another view suggested that interest rates should be raised "as soon as possible" to a range close to the neutral level. According to the Bank of Japan's estimate, the neutral rate is roughly between 1.1% and 2.5%. On the eve of this meeting, Bank of Japan Governor Haruhiko Kuroda was hospitalized for a liver cyst infection on June 9, marking the first time since 2010 that a policy meeting was held without the governor present. Kuroda was discharged from the hospital early last week. At the time of the release of the summary, the yen-dollar exchange rate was still hovering near its lowest level since 1986, with market expectations for a Federal Reserve rate hike heating up. As of Wednesday, the yen was trading around 161.60 against the dollar, with traders remaining vigilant about possible intervention by the Japanese government in the foreign exchange market. The Bank of Japan has stated that it will closely monitor the impact of exchange rate movements on inflation and the economy. For Japan, a country heavily reliant on imports, a depreciation of the currency will further exacerbate inflationary pressures. Another report released by the Bank of Japan on the same day showed that in June, corporate service prices continued to run at a high level, rising 3.3% year-on-year, maintaining this rate for the third consecutive month, in line with economists' expectations. Prime Minister Sanae Takaichi is seen as a potential resistance to Governor Kuroda's normalization of interest rates. Toichiro Asada, a Bank of Japan board nominee previously nominated by Takaichi, voted against the rate hike at the meeting last week, while another nominee nominated by her, Ayano Sato, will officially join the policy committee at the end of this month. On the eve of the meeting last week, Minister of Economic Policy Minoru Kiuchi, who was originally scheduled to attend as a representative of the government, expressed a "strong" desire for the central bank to strengthen policy coordination with the government. The summary also indicated that a Cabinet Office official reminded the committee at the meeting of the importance of fulfilling communication responsibilities regarding interest rate decisions - a statement interpreted by observers as a sign of increasing tension between the government and the central bank. The official stated in the summary: "It is very important for the central bank to explain the interest rate decision at this meeting, and at the same time, to take appropriate measures proactively when there are excessive fluctuations in economic activity."