BOJ wants to avoid shocks after July rate hike set off market crash

(Bloomberg) — The Bank of Japan's September board meeting highlighted the need to improve communication with financial markets, while some members stressed the importance of being wary of downside risks, one said Summary of opinions from the discussion.

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“If the bank undertakes further rate hikes, it will need to more carefully communicate its policy stance and other factors to markets,” one of nine policy board members said at the Sept. 19-20 meeting, according to the summary.

The summary suggests the BOJ will seek to send clearer guidance before raising its key interest rate again after the July 31 hike was criticized for triggering market turmoil that included the biggest fall in the Nikkei 225 in its history .

Investors are trying to gauge whether the bank might try to distance itself from its reputation as a surprise bank after the board began normalizing monetary policy in March. The initial reaction to the comments suggested that market participants were focused on the BOJ's repeated statement that it has room to wait and assess the economy before acting again. The yen weakened against the dollar and benchmark bond yields fell slightly.

The rare intense discussion of the BOJ's communications at a policy meeting also suggests that Governor Kazuo Ueda's recent comments that the bank had time to consider its next policy move were a deliberate signal intended to indicate that the likelihood of a political change this month is low.

Several opinions in the summary called for caution toward the global economy and financial markets. This is in line with Ueda's speech last week in which he stressed the need to keep a close eye on whether the Federal Reserve will be able to bring the US economy into a soft landing after launching an easing cycle last month .

“Uncertainties surrounding the Japanese economy have increased as downside risks to the global economy grow,” one member said, according to the summary, which did not say who said what. “In order not to surprise the markets, it is important for the bank to raise public awareness that the execution of the bank’s monetary policy is data-dependent.”

Most BOJ watchers expect authorities to pause for now after the market turmoil in early August and as they deal with uncertainties surrounding the U.S. economy and political changes in Japan and the U.S. Japan will hold a national election on October 27, days before the BOJ's next policy meeting. Many economists expect interest rates to rise in December or January.

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“When conducting monetary policy, the bank must give due consideration to the downside risks to the Japanese economy and monitor data carefully,” one member said, according to the summary.

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