The October meeting summary shows some policymakers wanted to move more quickly towards a neutral rate, while others wanted time to assess the effect of earlier increases.
Some Bank of Japan policymakers argued for a quicker pace of interest-rate increases as underlying inflation reached the bank’s 2% target, according to a summary of its October 29–30 meeting released on Tuesday. The bank held its policy rate at 1.25% at that meeting after raising it in June and September.
The summary recorded several views on how to proceed. Some policymakers thought borrowing conditions still supported economic activity and wanted to bring the policy rate closer to a neutral level sooner. Others pointed to areas of weakness in the economy and wanted to see how households and businesses were responding to the increases already in place.
Why the neutral rate matters
A neutral rate is an estimate of where borrowing costs neither stimulate nor restrain the economy. One opinion in the summary put that level considerably above 1%. Another warned that the policy rate had already entered the estimated neutral range and that a further increase could weigh on growth and push underlying inflation lower.
The range is wide enough to accommodate different views about how much room the bank has left to tighten. Higher energy costs and import prices have added to inflation pressure, Reuters reported, while policymakers are also watching the resilience of consumer spending.
Wages will inform the next decision
The October discussion also exposed different expectations for next year’s wage negotiations. Some policymakers saw room for pay growth to sustain inflation around 2%. Others saw little evidence that price increases would feed through into stronger wage gains.
Economists surveyed by Reuters expected a move to 1.5% in December. The November release records views expressed in October, and the board will have another round of economic data before making its next decision.
Sources
Bank of Japan — summary of opinions from the October 29–30 meeting
