During Thursday's Asian session, the US dollar moved in a narrow range against the yen, trading near 158.40 and nearly flat on the day. The September meeting minutes released Thursday showed that the committee unanimously agreed to continue raising interest rates, with some members suggesting the pace might need to accelerate if prices overshoot, while another said there was no need to rush. Oil prices have risen about 50% since July, and several members flagged tail risks of physical shortages. Government representatives called for a careful review of the cumulative effects of past rate hikes. The minutes reinforced the judgment that the debate is about the pace of rate hikes rather than the direction, and the market is focused on the December meeting.

Bank of Japan policymakers unanimously agreed at their September meeting that the central bank should continue raising interest rates, with some members arguing that the pace should be accelerated if prices face overshoot risks. The minutes released Thursday also showed that the government side called for prudence regarding the cumulative effects of past rate hikes. At the September 17-18 meeting, the BOJ raised its policy rate by 25 basis points to 1.25% in a 7-2 vote, the highest since 1995. The minutes showed that members unanimously agreed that, given underlying inflation is approaching 2% and financial conditions remain accommodative, it is appropriate to continue raising rates and adjust the degree of monetary easing.

Policy Phase Shift: From Pushing Up Inflation to Stabilizing Near 2%

Several members noted that the policy phase has shifted. One member said the goal is no longer to push up underlying inflation but to stabilize it near 2%. Another said the BOJ should demonstrate its determination to prevent price overshooting and respond flexibly to overseas developments. A third said that if signs of upward price deviations emerge, the central bank will need to accelerate the pace of rate hikes. Another member advocated moving rates toward neutral relatively quickly to leave room for action in both directions. The common thread in these remarks is that the policy focus has shifted from stimulating inflation to managing inflation, with accelerate and near neutral becoming the new key words.

Divergence and Reservations: No Need to Rush, Two Dissenters Favored Holding at 1%

Not everyone was in a hurry to act. One member said the acceleration in underlying inflation is not yet sufficient to constitute a risk of being behind the curve, so there is no need to rush. Two dissenters — Asada and Sato — preferred to keep rates unchanged at 1%. Asada argued that with core inflation below 2%, the economy cannot necessarily be called strong. Sato said economic and price trends have not substantially accelerated. This divergence indicates that the committee has consensus on direction but a substantive debate on pace, and the 7-2 vote is a direct reflection of that debate.

Oil Price Shock: Up About 50% Since July, Physical Shortages as a Tail Risk

Oil prices occupied an important place in the discussion. One member pointed out that crude oil prices have risen about 50% since July, while the yen has appreciated about 5%. If this trend continues, it will significantly push up consumer prices. Several members flagged tail risks of physical crude shortages, not just price increases, citing reasons including the suspension of Saudi pipeline operations, unstable Red Sea shipping, and declining inventories in the United States and China. This detail is noteworthy: the BOJ's focus on oil prices has extended from price pass-through to supply availability. This means further deterioration in the Middle East situation could directly change the BOJ's policy pace.

Neutral Rate and Market Expectations: Markets May Be Running Ahead of the Economy

Members also discussed the neutral rate. One member noted that market indicators for the peak policy rate have risen above 2%. Another said market expectations for rate hikes appear to be somewhat ahead of the economy. The implication is that market pricing may already reflect the rate hike path fairly fully, and if economic data fail to keep up, further upside room for long-term rates may be limited. Meanwhile, government representatives took a more cautious tone. The Cabinet Office said the BOJ should carefully review the cumulative effects of past rate hikes, consider its neutral rate estimates, and act appropriately when the economy and markets show excessive volatility.

Conclusion

The September meeting minutes show that the BOJ committee's debate focused on the pace of rate hikes rather than the direction. Most members supported continued rate hikes, with some advocating a faster pace and a relatively quick approach to the neutral rate if prices overshoot. However, one member saw no need to rush, and two dissenters favored holding at 1%. Oil prices have risen about 50% since July, and several members flagged tail risks of physical shortages, making the Middle East situation a variable that directly affects Japan's rate expectations. Market expectations for the peak policy rate have risen above 2%, but one member believes market expectations are running ahead of the economy, and upside room for long-term rates may be limited. The government called for reviewing cumulative effects, signaling that rapid tightening still faces political resistance. The minutes reinforced market attention on the December meeting: the policy direction is set, but the pace is not.

At 8:05 Beijing time, the US dollar was quoted at 158.40/41 against the yen.