Bank of Japan minutes turn hawkish: Most members believe a near-term rate hike is needed, with the probability of a December hike rising to 70%

Bank of Japan minutes turn hawkish: Most members believe a near-term rate hike is needed, with the probability of a December hike rising to 70% The summary of minutes from the Bank of Japan's latest policy meeting shows that multiple members believed a near-term rate hike was necessary, suggesting a strong likelihood of a December increase. According to the summary of minutes from the October 29-30 meeting published on Tuesday, one of the nine members said: "The Bank should decide on the next policy rate hike at a feasible timing without being overly cautious." After sustained price increases, the Bank of Japan has accelerated the pace of rate hikes, with current market expectations broadly centered on a "quarterly rate hike" rhythm. Details from the summary of opinions released Tuesday show that members' confidence in another rate hike in December has strengthened. The most critical change last month was that the Bank of Japan acknowledged for the first time that underlying inflation had reached its target for the first time since the target was set in 2013. This assessment weakened the case for maintaining accommodative policy, with multiple members' opinions noting the need to raise the policy rate to a neutral levelone that neither stimulates nor restrains the economy. One member said, "Underlying CPI inflation has reached 2%, and the Bank needs to raise the policy rate to a neutral level as soon as possible." Governor Kazuo Ueda hinted at the post-meeting press conference that another rate hike was possible in December. Although policymakers will closely monitor the recent global stock market decline triggered by AI concerns, this summary of minutes will likely reinforce market expectations for a year-end rate hikeas the Bank of Japan's policy focus shifts from "pushing up prices" to "stabilizing price trends." Japan's policy rate currently stands at 1.25%, the highest level in thirty years. Nevertheless, according to data separately released by the Bank of Japan on Tuesday, bank lending in October still grew at a solid pace of 5.6%. This supports the Bank of Japan's assessment that financial conditions remain accommodative. "The current situation is viewed as a new phase in which the Bank needs to accelerate the pace of raising the policy rate toward the neutral rate," one member said. After last month's rate hike, the Bank of Japan chose to hold off on consecutive increases at this meeting. Swap pricing shows the probability of another rate hike in December at about 70%. Another market focus of this summary of minutes is the remarks of government officials who regularly attend policy meetings. Economic Policy Minister Minoru Kiuchi was absent this time, while a Cabinet Office representative agreed with the Bank of Japan's view on the importance of stabilizing price trends. This may reinforce the market view that the government led by Prime Minister Sanae Takaichi will not obstruct the next rate hike.