I posted earlier on why this doesn't rally matter too much, the meeting pre-dates December’s much more consequential rate hike and the subsequent swings in the yen:

Anyway, for good order, here's a summary article.

Summary

  • BOJ October minutes reflect broadly stable global and domestic conditions at the time

  • U.S. growth seen as solid, supported by AI investment and resilient consumption

  • China identified as a growing downside risk amid tariff pressures and property weakness

  • Japan’s financial conditions remained highly accommodative, with real estate risks noted

  • Core inflation around 3%, driven largely by food prices and wage pass-through

Minutes from the Bank of Japan October policy meeting (full text is here if you are interested) show policymakers broadly comfortable with the prevailing economic and financial backdrop at the time, while remaining alert to risks stemming from global trade policy, inflation dynamics and asset-price developments.

Board members judged global financial markets to be in a relatively constructive mood, noting that U.S. equity markets had continued to post record highs. This was attributed to easing uncertainty around the economic impact of tariff policies, alongside rising optimism surrounding artificial intelligence investment and potential productivity gains. At the same time, some members cautioned that equity markets could become vulnerable if AI-related revenue failed to meet elevated expectations.

Overseas economic conditions were assessed as generally stable, though uneven. The U.S. economy was seen as maintaining solid growth, supported by resilient consumption and robust AI-driven capital spending, even as some weakness emerged in employment growth. Members noted growing divergence in consumption patterns across income groups, with higher asset prices supporting spending among wealthier households while price pressures weighed on consumption of necessities. While tariff-related cost pressures had so far been absorbed by firms, several members warned that these costs could eventually be passed on to consumers with a lag.

Europe was described as relatively weak, partly reflecting a pullback following earlier export front-loading, while China’s economy was seen as decelerating amid higher tariffs, fading policy support and ongoing property-sector adjustment. Some members highlighted China as an increasingly important downside risk for the global outlook.

Domestically, members agreed that Japan’s financial conditions remained highly accommodative, with signs of credit expansion, particularly in real estate and merger-and-acquisition activity. Several policymakers flagged rising urban property prices, attributing them partly to deeply negative real interest rates, yen depreciation and overseas capital inflows, as well as supply-side constraints.

Japan’s economy was judged to be recovering moderately overall. While U.S. tariffs had weighed on corporate profits, members saw little evidence that these effects had spilled over meaningfully into investment, employment or wage trends. Business investment was viewed as on a moderate upward trajectory, supported by favourable sentiment and resilient corporate earnings. Private consumption was seen as holding up, aided by improving employment and income conditions, though rising prices were prompting greater consumer thrift, particularly for everyday goods.

On prices, members agreed that core inflation had been running around 3% year-on-year, driven largely by food prices and ongoing pass-through of wage increases. Inflation expectations were seen as edging higher, though debate persisted over how much of the recent inflation reflected cost-push factors versus demand-driven pressures, and how durable these trends would prove.

On policy:

Summary

  • Gradual normalisation bias: Policymakers agreed that real interest rates remained significantly low and that, if the economic and inflation outlook were realised, the BOJ would continue raising rates and reducing monetary accommodation over time.

  • Hold for now, assess further: Most members supported keeping the policy rate around 0.5% at the October meeting, arguing more time was needed to confirm the durability of wage growth amid global and trade-policy uncertainty.

  • Growing internal divide: A minority of members favoured an immediate hike toward 0.75%, citing upside inflation risks, yen depreciation and concerns that policy could remain too accommodative for too long.

  • Wages as the key trigger: The board repeatedly stressed that sustained wage-setting behaviour — particularly ahead of the 2026 spring negotiations — would be central to decisions on further rate increases.

  • Emphasis on communication and flexibility: Members highlighted the need for clear communication and a flexible reaction function to avoid market instability while continuing the gradual path toward policy normalisation.

The minutes show a policy board increasingly confident that the conditions for further normalisation were falling into place, while still divided over the appropriate timing and pace of rate increases amid elevated global uncertainty.

Members broadly agreed that real interest rates remained significantly low and that, if the outlook for economic activity and prices were realised, the Bank would continue to raise the policy interest rate and adjust the degree of monetary accommodation. At the same time, policymakers emphasised the need to proceed without preconceptions, given ongoing uncertainties around global trade policy, foreign economic conditions and financial market developments.

For the intermeeting period, most members judged it appropriate to maintain the existing guideline targeting the uncollateralised overnight call rate at around 0.5%. While confidence in the baseline outlook was seen as gradually improving, many argued that more time was needed to confirm whether firms’ wage-setting behaviour would remain robust, particularly against the backdrop of lingering uncertainty over U.S. tariff policy and the direction of economic policy under Japan’s new administration.

That said, the minutes reveal a clear debate within the board. A few members favoured raising the policy rate to around 0.75% at the October meeting, citing upside risks to prices, especially from yen depreciation and the possibility that inflation pressures could intensify if policy remained too accommodative for too long. Others acknowledged that conditions for further normalisation were close to being met but stressed the importance of confirming that underlying inflation had become sufficiently entrenched.

Looking ahead, members placed particular emphasis on wage dynamics as the key determinant of future policy moves. Several highlighted the importance of monitoring firms’ profit projections, developments ahead of the 2026 spring wage negotiations, and anecdotal evidence on wage-setting behaviour. Policymakers also flagged the need to watch global trade developments, U.S. monetary policy, exchange-rate moves and domestic price trends.

Overall, the discussion underscored a shared commitment to gradual normalisation, careful communication and flexibility, with the Bank seeking to avoid both premature tightening and the risk of falling behind the inflation curve.

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Source: Investing Live