Sept 18 (Reuters) – The Bank of Japan raised interest rates to a 31-year high of 1.25% on Friday in a widely expected move to forestall risks of inflation overshooting its 2% inflation target.
At a two-day policy meeting that ended on Friday, the board decided by a 7-2 vote to raise its policy rate from 1%. Board members Toichiro Asada and Ayano Sato dissented to the decision.
COMMENTS
NAKA MATSUZAWA, CHIEF MACRO STRATEGIST, NOMURA SECURITIES, TOKYO:
“It’s (the yen’s decline) a knee-jerk reaction to the two dissent votes.”
“The bottom line is I think it’s not too hard for the BOJ to keep the currency pricing for market expectations of rate hikes, basically every three months. And I do think that’s what the BOJ wants to keep, not necessarily suggesting an October hike.”
RAY ATTRILL, HEAD OF CURRENCY STRATEGY, NATIONAL AUSTRALIA BANK, SYDNEY:
“They’ve just clearly underwhelmed versus expectations here. And I think that one of the more staggering aspects of it was that they couldn’t even get the unanimous vote for that. I think that really raised eyebrows in the market.
“(There was) nothing to put the market more firmly on the sense of another increase in Q4. It’s clearly on Governor Ueda to put the market back more firmly on that stance. If he fails to do that, then I think dollar-yen is headed higher.”
“It’s hard to believe that just on the back of one quarter-point the (US) Treasury Secretary is going to be jumping for joy and as willing to replicate what they did in August (by intervening). The risk here is that we’re heading back up to 160.”
BART WAKABAYASHI, BRANCH MANAGER, STATE STREET, TOKYO:
“They raise rates and the currency loses 100 points – I think the market is looking at the BOJ versus the G3 and G10 central banks and the interest rate spread is what is in play.”
“I think it’s important that the six-month cycle has been broken, and that leaves the market to say, hey, these guys are willing to act if they have to.”
“But there is a factor where they need to keep up (with other central banks)…if (Ueda) is not as hawkish as the Fed (at the news conference), dollar/yen could really take off higher.”
DAVID CHAO, GLOBAL MARKET STRATEGIST FOR ASIA-PACIFIC, INVESCO, SINGAPORE:
“The BOJ has finally shed its long-term status as a monetary policy outlier and is joining the ranks of the other major central banks.”
“The market fully anticipated this rate hike, but it has to be taken in context with what’s going on with the rest of the world. The BOJ, Fed and ECB have all hiked rates in the same month.”
MASAHIKO LOO, SENIOR FIXED INCOME STRATEGIST, STATE STREET INVESTMENT MANAGEMENT, TOKYO:
“Markets should focus less on the statement and more on Ueda’s press conference. Expect a neutral-to-slightly hawkish tone, emphasizing that every meeting remains ‘live’ from here given resilient growth, persistent inflation risks and a policy rate (real yield) that remains accommodative even at 1.25%.”
“More broadly, Japan is increasingly participating in a synchronized global tightening cycle. The debate is no longer whether the BOJ hikes, but how far rates ultimately go as major central banks continue to grapple with sticky inflation, AI-driven investment demand and rising term premium.”
“Combined with higher domestic yields and growing confidence in the BOJ’s normalization path, more capital is likely to stay in Japan rather than flow abroad. The bigger story remains that Japan is gradually ceasing to be a marginal buyer of foreign assets, not because it is selling aggressively, but because domestic alternatives are becoming more attractive.”
CAROL KONG, CURRENCY STRATEGIST, COMMONWEALTH BANK OF AUSTRALIA, SYDNEY:
“The fact that two BOJ board members appointed by Takaichi opposed a hike today suggests the government still leans against BOJ rate hikes. This, together with the lack of guidance on the future pace of tightening in the statement, triggered a sell-off in the JPY. As usual, Governor Ueda’s post-meeting press conference will provide more insights into the rate outlook. The risk is Ueda fails to match markets’ hawkish expectations, fuelling further JPY weakness. We expect a follow-up hike in December.”
YUGO TSUBOI, CHIEF STRATEGIST, DAIWA SECURITIES, TOKYO:
“Overall, the decision is likely to be seen as dovish. There had been some concern, albeit limited, about a 50-basis-point rate hike, but that did not happen. With two dissenting votes, markets likely took the view that it would be difficult to assume the pace of rate hikes will accelerate rapidly.”
“U.S. Treasury Secretary Bessent’s negative comments on reflationary policy had also raised concerns about the potential economic damage from the BOJ becoming more hawkish than previously expected. Those concerns have receded, prompting a rise in stocks.”
SHUN HONG LIU, CHIEF INVESTMENT OFFICER, HONG INVESTMENT ADVISORS, HONG KONG:
“Honestly, it is so hard to have a very strong view in this market, given things are so political everywhere else in the world. Just imagine Japan needing to get consent from the US for intervention—what can be done and what cannot be done will be coordinated by so many politicians.”
“Last week, if you had asked me, I would have answered yes, it is the end of the yen carry trade (after the rate hike). But now I would answer no, as Takaichi confirms a 3.5% military spending target, while people suddenly believe that Warsh is an uber-hawk. So I just keep my eyes open and trade accordingly.”
KANAKO NAKAMURA, ECONOMIST, DAIWA INSTITUTE OF RESEARCH, TOKYO:
“The expected dissent by two members suggests political pressure on the BOJ has not entirely faded. The reappointment of Minister Kiuchi in the cabinet reshuffle also signals continued support for expansionary fiscal policy, raising concerns that fiscal stimulus could add to inflation pressures.”
“While the BOJ’s statement showed readiness to address upside inflation risks, Governor Ueda’s press conference will be key for assessing the future pace of rate hikes.”
“With producer prices remaining elevated, oil prices rising on Middle East tensions, and a weak yen adding to inflation risks, we do not believe this rate hike alone will be sufficient. We expect the BOJ to accelerate rate hikes to roughly once a quarter.”
PRASHANT NEWNAHA, SENIOR RATES STRATEGIST, TD SECURITIES, SINGAPORE:
“No real surprises from the BOJ decision to hike the target rate 25bps to 1.25%, and neither was the 7-2 split, with recent Takaichi appointees Sato and Asada voting against the hike. The statement retains most of the hawkish tone from the July Statement noting ‘accommodative financial conditions are expected to be maintained’ even after the hike, and the Bank ‘will continue to raise the policy interest rate’. The Bank reiterated its concerns that underlying inflation could deviate upwards from its 2% target, but we don’t see a smoking gun supporting a back to back hike in October. We stick with our call for rate hikes roughly every quarter with the next 25bps hike in December.”
TOHRU SASAKI, CHIEF STRATEGIST, FUKUOKA FINANCIAL GROUP AND FORMER BOJ OFFICIAL, TOKYO:
“It’s a little bit surprising to see that the yen weakened after the announcement. Maybe some market participants were expecting intervention like the last time before and after the BOJ’s decision.”
“Probably some were surprised because two members opposed the decision and maybe some were expecting some mention of a 50 basis point hike.”
“It’s a bit difficult to meet market expectations. Ueda-san has to be very hawkish to keep the yen from depreciating, but I think it’s a bit difficult for him to be so hawkish.
“He has to say that the BOJ will probably hike the policy rate again within this year. But I think it’s difficult for him to say, so the market will take it as a dovish press conference.”
ANTHONY MALOUF, EBURY, SYDNEY:
“The seven-to-two vote is a touch wider than a clean hawkish consensus would suggest. Dissenters Asada Toichiro and Sato Ayano argued that inflation and growth have not accelerated enough to justify tightening now.”
“The more telling split, though, sits elsewhere. Board members Takata Hajime and Tamura Naoki opposed the outlook language from the opposite direction, arguing underlying inflation has already reached a level consistent with the 2% target, which points to appetite for a faster pace rather than a slower one.”
“The yen sold off after the decision. We interpret this as markets focusing on the two dissents, suggesting the board is less united behind a faster pace than the vote count alone implies, rather than doubting the hike itself.”
“That fits our own view that the BOJ will deliver further hikes at a steady quarterly pace, with the next move in December and another in the first quarter of 2027, taking the policy rate to its neutral level near 1.75%.”
KENTO MINAMI, SENIOR ECONOMIST AT DAIWA SECURITIES, TOKYO:
“The overall impression of the statement was dovish.”
“BOJ’s new board members Ayano Sato and Toichiro Asada dissented from the decision. They were chosen by Prime Minister Sanae Takaichi, which suggests difficulties in raising rates in the future as the BOJ will have new board members going forward.”
“The statement indicated that the BOJ would raise rates at least once every six months, but this was in line with market expectations that the BOJ would raise rates every three months. These two dissenters were a dovish factor, which is why the yen started falling right after the decision.”
MASATO KOIKE, SENIOR ECONOMIST, SOMPO INSTITUTE PLUS, TOKYO:
“I think the statement was hawkish, but markets had expected something even more hawkish, which is why the yen weakened after the announcement.”
“What struck me as hawkish was the explicit reference to accommodative financial conditions, and the wording that the BOJ will continue to adjust the degree of monetary easing. It also clearly mentioned upside risks.
“In addition, the BOJ cited a range of factors — not just crude oil, but price increases linked to AI-related demand, the weaker yen, and the mutually reinforcing mechanism between wages and prices. Those elements made the decision look hawkish overall.”
“I don’t think (Sato joining Asada in dissent) will have an impact when it comes to the pace of rate hikes being delayed. Sato’s dissent was in line with expectations, but I see it as opposition to the timing or pace rather than a blanket objection to rate hikes. It did not come across as outright opposition, which I think is positive for the BOJ as it proceeds with further rate increases.”
HIROFUMI SUZUKI, CHIEF FX STRATEGIST, SMBC, TOKYO:
“The rate hike itself was in line with market expectations, but the two dissenting votes came as a modest surprise, as only some market participants had anticipated them.
“The outcome has somewhat tempered expectations for further rate hikes and conveyed a dovish impression.
“The pace of future rate hikes is likely to depend primarily on the views of the BOJ’s leadership. We therefore do not expect the pace to differ significantly from current market expectations.
“The yen initially weakened following the decision, but attention now turns to Governor Ueda’s inflation outlook and policy stance at the press conference.”
FRED NEUMANN, CHIEF ASIA ECONOMIST, HSBC, HONG KONG:
“The tone of the statement, along with two dissenters on the decision to raise rates, leaves lingering doubts that Japan’s central bank will be cautious in tightening monetary policy further. In addition, new inflation numbers out this morning for August showed that price pressures remained unchanged in August, rather than accelerate.”
“All eyes are now on the press conference to be held by Governor Ueda, with the market looking for hawkish reassurances that the BOJ is prepared to raise rates again soon. While back-to-back hikes appear unlikely, investors will look for clues as to whether officials are prepared to raise interest rates again in December. Given that the Fed has tilted into a more hawkish direction, the pressure remains for the BOJ to follow suit: Governor Ueda will have to follow-up today’s rate hike with by keeping the door open for another hike before the end of the year.”
(Reporting by Reuters Asia markets team; Editing by Eileen Soreng)
Comments