BoJ Board Divided on Rate Hike Pace Amid Inflation Risks

The Bank of Japan's (BoJ) monetary policy meeting revealed a divided board on the pace of rate hikes amid inflation risks. A split opinion emerged, with some members advocating for maintaining the current policy rate to assess its impact on inflation and activity, citing a roughly one-to-one-and-a-half-year lag before effects become visible.

On the other hand, another board member argued that conditions remain accommodative enough for the central bank to continue raising rates. A more extreme view suggested that the pace of hikes could end up faster than markets currently expect due to rising upside risks to prices.

The BoJ described Japan's economy as recovering moderately but facing crosscurrents, with Middle East tensions weighing on activity and AI-related demand offsetting the drag, while yen weakness cuts both ways. One member noted that Japan has previously shown resilience against major external shocks, including US tariff policy and the Middle East conflict.

The underlying CPI inflation is expected to reach a level broadly consistent with the price stability target between the second half of fiscal 2026 and fiscal 2027, with the Middle East situation, AI demand, and yen weakness adding upward pressure. The USD/JPY pair stuck close to the 158.00 mark following the release of the BoJ's Summary of Opinions.