Bank of Japan signals faster rate hikes if inflation rises further, fueling October move speculation

Multiple policymakers at the Bank of Japan's monetary policy meeting last month voiced concern over rising prices when the central bank raised its benchmark interest rate, records show. With some members arguing that the pace of rate hikes should be accelerated if upside inflation risks intensify, markets are now watching for the possibility of another increase as soon as this month.

The Bank of Japan raised its benchmark interest rate by 0.25 percentage points to "around 1.25 percent" at the meeting — the highest level in 31 years — and speculation is growing that it could move again at its very next meeting this month.

The central bank on Thursday released the "main opinions" discussed at its monetary policy meeting held Sept. 17-18.

Kyodo News reported that policy board members expressed wariness about inflation running above the Bank of Japan's 2 percent target.

Several members said that if signs of broadening price pressures emerge, the central bank would have no choice but to quicken the pace of rate hikes.

The Bank of Japan had generally followed a practice of raising rates roughly every six months, but it has recently narrowed that interval, having hiked in June and again in September.

Kyodo noted that some market participants are already predicting another rate increase at this month's meeting — just one month after the last one.

The Bank of Japan estimates its neutral interest rate — the level that neither stimulates nor restrains the economy — at between 1.1 percent and 2.5 percent in nominal terms.

With the benchmark rate now at 1.25 percent annually following last month's decision, it has moved above the lower bound of that estimated range.

The Nikkei reported that a majority of board members at the meeting said the neutral rate should not be given excessive weight in benchmark interest rate decisions.

However, a government official present at the meeting urged caution, calling on the board to "carefully examine the cumulative effects of previous rate hikes."