Bank of Japan meeting minutes: December rate hike "one step closer"

On Monday, the latest policy meeting minutes released by the Bank of Japan indicate that the bank may implement its next interest rate hike as early as December, which is in line with mainstream market expectations. The minutes show that the nine-member committee is increasingly inclined to believe that the timing for a rate hike is approaching.

One committee member stated clearly during the meeting, "The conditions for further advancing the normalization of policy interest rates are almost met," while emphasizing the need to examine underlying inflation. At the two-day meeting that ended on October 30, the committee voted 7 to 2 to keep rates unchanged.

The minutes are consistent with signals recently released by Bank of Japan Governor Kazuo Ueda. Ueda had previously hinted that a rate hike could come within the next few months. Currently, nearly all Bank of Japan observers expect borrowing costs to be raised before January, and the market focus has shifted to whether the hike will occur on December 19 or the following month.

After the release of the minutes, the yen was trading near 153.80 yen per U.S. dollar; last week, the yen touched an eight-month low of 154.48.

Policy rate remains at 0.5%, dissenting votes at two consecutive meetings

At the October meeting, the Bank of Japan maintained the policy rate at 0.5%. This marked the second consecutive meeting in which Kazuo Ueda faced dissenting opinions from two committee members calling for a rate hike, showing a split within the committee over the timing of a rate increase.

According to a media survey last month, about half of the Bank of Japan watchers expect a rate hike next month, while about 98% of respondents predict a hike will occur by January at the latest.

Exchange rate becomes a key trigger

According to a Wallstreetcn article, Deutsche Bank previously stated that future yen exchange rate fluctuations have become a key indicator for predicting the timing of a rate hike. A report issued by Deutsche Bank on October 30 noted that this meeting sent a crucial signal of policy shift—the Bank of Japan will increasingly emphasize actual inflation rather than just focusing on potential inflation.

Deutsche Bank analysts believe that if the yen continues to depreciate and drives up actual inflation, the central bank might accelerate the pace of rate hikes. Conversely, if actual inflation falls below the 2% target, the rate hike process may be delayed until after April 2026.

Deutsche Bank stresses that the USD/JPY exchange rate will be an important variable affecting the timing of a rate hike. If the exchange rate approaches 160, the probability of a December rate hike will rise significantly. The bank maintains its earlier forecast, expecting the Bank of Japan to raise rates by 25 basis points in January 2026, July 2026, and January 2027, with the policy rate ultimately reaching 1.25%.

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