(Bloomberg) -- A summary of opinions from the Bank of Japan’s July 31 meeting showed officials expected monetary policy to remain accommodative even after they hiked interest rates, suggesting they didn’t expect the move to be big enough to disrupt global markets.
At that meeting, the central bank raised its benchmark interest rate to 0.25% while also unveiling plans to halve the pace of its monthly bond buying by the first quarter of 2026. Governor Kazuo Ueda said after the meeting that the BOJ will raise the rate further if growth and inflation trends develop in line with its forecasts, which struck some analysts as hawkish.
“It should be noted that raising the rate at a moderate pace means an adjustment in the degree of monetary accommodation in accordance with underlying inflation, which will not have monetary tightening effects,” one of nine board members said, according to the summary released Thursday.
Japanese stocks suffered the worst crash since 1987 and the yen soared after that July meeting on expectations for additional BOJ rate hikes and potential rate cuts by the Federal Reserve. In an attempt to reassure investors, Deputy Governor Shinichi Uchida said on Wednesday that the BOJ won’t raise rates when financial markets are unstable, buoying stocks and sending the yen lower.
Another comment emphasized that even with the hike, real interest rates would remain well below the neutral rate, indicating a view that policy continuity was intact overall. “As the level of the neutral rate seems to be at least around 1%, in order to avoid rapid hikes in the policy interest rate, the bank needs to raise the policy interest rate in a timely and gradual manner,” one member said.
Japanese Minister of Finance Shunichi Suzuki said at a press conference Thursday that various factors have been driving market movements, and algorithmic trading can’t be ruled out as a potential factor that has led to volatility in Japan’s stock markets in recent days.
Authorities are closely monitoring the volatility, but “not at a stage of doing anything concrete,” Suzuki said.
The minister voiced support for the central bank, saying the BOJ should decide concrete steps pertaining to monetary policy.
In the BOJ’s summary of opinions, some called for a cautious approach to rate policy at a time when the economy remains fragile. The vote for the rate hike was 7 to 2, with board members Toyoaki Nakamura and Asahi Noguchi dissenting. The summary doesn’t say which board members said what.
“It is necessary to more carefully assess how the economic situation has improved with wage hikes becoming widespread, based on relevant data, as there are many data sets showing somewhat weak developments in, for example, the economic growth rate and private consumption,” one member said.
Another member dissented citing weak economic indicators.
“There is little data confirming sustainable growth in Japan’s economy at this point,” one member said. “I am therefore dissent on raising the policy interest rate.”
Regarding cutting the BOJ’s monthly purchases of sovereign debt, one member said it will take a long time to normalize the bank’s balance sheet with the side effects of its large bond holdings likely to linger.
--With assistance from Erica Yokoyama.
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