Bank of Japan's October Meeting Highlights

By Leika Kihara
TOKYO (Reuters) – Bank of Japan policymakers agreed in October to continue raising interest rates if the economy aligns with their forecasts. However, caution was advised due to uncertainties surrounding U.S. economic policy, as indicated in the meeting minutes released on Tuesday.

The discussions emphasize that international economic risks, particularly those related to the new U.S. administration's policies, will significantly influence the timing of BOJ rate hikes.

The October 30-31 meeting occurred prior to Donald Trump's victory in the November 5 presidential election, during which BOJ board members identified potential market volatility and substantial shifts in U.S. policy as crucial risks to the economic outlook.

One board member emphasized, "We can spend time scrutinizing U.S. developments, including those after the U.S. presidential election, as we had already been expecting to raise rates at a moderate pace."

Despite concerns about external risks, the board remained optimistic about domestic economic conditions. Many board members stated that the prospects of higher wages would help bolster consumption and support the goal of achieving the BOJ's 2% inflation target sustainably.

A few members remarked, "Wage growth is likely to remain elevated in next year's spring wage negotiations" between companies and unions.

The BOJ maintained interest rates at 0.25% during the October meeting but forecasted inflation to stay around the 2% target in the coming years, signaling a potential rate hike on the horizon.

While confirming plans to raise rates contingent on meeting economic and price projections, many members called for caution due to multiple risks.

One member stated, "We must guide monetary policy cautiously given heightening uncertainty at home and abroad," explaining the reasoning behind the BOJ's decision to hold steady in October.

Another opinion pointed out the need for careful consideration regarding the timing of a rate increase, noting that Japan's policy rate has not surpassed 0.5% for the last three decades.

Following the October meeting, the BOJ kept rates unchanged in December to await additional data on wage trends for the upcoming year and to gain clarity regarding president-elect Donald Trump's policies.

Previously, the BOJ ended negative interest rates in March and raised its short-term policy target to 0.25% in July. It has indicated readiness for another hike if wages and prices develop as anticipated.

In a recent Reuters poll, all respondents expected the BOJ to raise rates to 0.50% by the end of March, although opinions varied on whether this would occur in December, January, or March.