According to the Summary of Opinions from the Bank of Japan's September meeting, some policymakers believe it is necessary to accelerate the pace of interest rate hikes, or to bring rates closer to the central bank's "target" as soon as possible, raising the possibility of further rate increases.

Most opinions held that amid rising inflation pressures, it is necessary to continue raising borrowing costs after the September rate hike. One member was quoted as saying: "If signs of upward deviation in prices are observed, the central bank will need to accelerate the pace of rate hikes." Another opinion stated: "It is desirable for the central bank to raise the policy rate to roughly the target level relatively quickly," in order to leave room to respond to unexpected economic developments.

These opinions highlight the committee's growing concern about inflation risks and reinforce the mainstream market expectation of another rate hike this year. One member said: "Given the latest developments, we must consider the prospect that oil prices may remain elevated," suggesting vigilance over the ongoing impact of Middle East conflicts.

At the September meeting, the BOJ raised its policy rate to a 31-year high of 1.25%, with the governor hinting at a new phase focused on preventing inflation overshooting, opening the door to further rate increases. Multiple opinions noted that underlying inflation has reached or is approaching the central bank's 2% target. One member said that while the central bank need not rush, it should raise rates to prevent excessive and sustained price increases, as underlying inflation is expected to reach 2% soon.

Many analysts expect the BOJ to raise rates again in October or December. As U.S. inflation data came in below expectations, the outlook for U.S. rate hikes has weakened, which may ease pressure on the BOJ to raise rates this month to avoid an undesirable yen decline that would push up import costs.

Nevertheless, the BOJ faces greater pressure to raise rates than other central banks because its policy rate remains near the bottom of Japan's estimated nominal neutral rate range of 1.1% to 2.5% — a level that neither cools nor overheats growth. One member said that given significant upside price risks, the central bank should "continue to act in a timely manner without excessive caution" in raising rates, adding that analysis of neutral rate estimates should be strengthened.

After the summary was released, the U.S. dollar rose to around 157.87 yen as investors reduced bets that the BOJ might hike rates consecutively in October.

Resistance to Rate Hikes

However, not everyone believes conditions are ripe for a rate hike. Two dovish members of the nine-member committee, Toichiro Asada and Ayano Sato, dissented from the September rate hike decision. The summary contains some opinions that may have come from them, warning that weak consumption and sluggish services inflation growth are reasons to keep policy unchanged.

The summary shows that a representative from the Cabinet Office also urged the BOJ at the meeting to "carefully examine the cumulative effects of past rate hikes," indicating concerns that higher rates could weigh on the economy. The representative was quoted as saying: "Looking ahead, it may be necessary for the central bank to consider its neutral rate estimate," and urged caution on further rate hikes.

Although the summary did not disclose the identities of those who commented, Economic Minister Minoru Kiuchi attended the September meeting on behalf of the Cabinet Office. Kiuchi is seen as a reflationist aide to Prime Minister Sanae Takaichi, who herself is cautious about BOJ rate hikes because they could raise the financing costs of her ambitious spending plans.