FX.co ★ BoJ Weighs Next Rate Hike But Stresses Caution Amid U.S. Risks

The Bank of Japan has indicated the possibility of additional interest rate hikes if its forecasts for economic activity and inflation are realized, as reflected in the summary of discussions from its September meeting. Policymakers emphasized the importance of evaluating the future "without any preconceived notions." Despite the anticipated drag on growth from U.S. tariffs, which have been reduced to 15%, the economic slowdown is expected to be only temporary. Regarding inflation, consumer price index (CPI) growth is anticipated to remain below 2% for fiscal year 2026, as pressures from food-related costs begin to subside. Some policymakers suggested that it might be prudent to consider another rate hike, noting that more than six months had passed since the last adjustment. However, others highlighted that previous hikes to 0.5% had a "very limited" impact. With both upward and downward risks present, there was a warning against hastily raising rates to a restrictive level. Due to uncertainties about a U.S. economic slowdown, many members agreed that maintaining accommodative monetary conditions is advisable, and that an unexpected rate hike should be avoided.