BOJ policymaker Sato opens door to further rate hikes

A policymaker at the Bank of Japan (BOJ) who was previously seen as a proponent of loose monetary policy has shifted her stance, signaling openness to further interest rate hikes. Ayano Sato, a relatively new member of the BOJ board, told Kyodo News that she could support raising rates "in stages" due to rising oil prices and inflation concerns.

Sato had dissented against the BOJ's September rate hike to 1.25%, the highest level in 31 years, citing weak consumer spending and lack of acceleration in "underlying" inflation. However, she acknowledged that financial conditions remained "accommodative," meaning borrowing costs were not yet restrictive. Her previous dissent had weakened the yen, as markets interpreted it as a sign that future hikes would face political hurdles.

In a recent interview with Asahi, Sato indicated that inflation risks are now tilted to the upside, particularly due to rising crude prices linked to the Middle East conflict. She also noted that she is not far from the rest of the board's views as inflation nears the BOJ's 2% target. Reuters reported that officials may pause rate hikes in October but could still consider a December hike.

For markets, Sato's new stance suggests that September's rate hike may not be a one-off. Central bank decisions rely on votes, and markets try to predict the next split. If a previously reliable holdout like Sato now supports further tightening, investors may assume that future hikes are more likely. This could lead to higher short-term Japanese interest rates and increased sensitivity of the yen to BOJ communications.