BoJ Rate Decision Vote

The fact that the BoJ vote on holding the interest rate were it is came in at 8-1 is causing a bit of a stir:

"The 8-1 vote left an impression that BOJ board members were more cautious about a rate hike than previously thought, spurring short covering in bonds," said Takeo Okuhara, a bond strategist at Daiwa Institute of Research.

Now back at the end of June Morgan Stanley's Takehiro Sato announced on their Global Economic Forum that they were finally throwing in the towel and coming into line with the rest of the pack in forecasting another rate hike in August. Let's just hope they won't have to apologise to their readers yet one more time. Looking at what is happening to consumer confidence and domestic demand right now, I can't help feeling that they may well have to.

We had expected a pace of one rate hike every six months but no rate hike in the summer because of the negative CPI rate. It has become clear, however, that the current price trends matter less to the BoJ than we expected. In addition, the BoJ maintains that it can smoothly realize sustained economic activity and prices in line with its forecasts if it adjusts its policy rate as the market expects. We thus find it difficult to continue to ignore the fact that the OIS market has priced in an almost 100% probability of a summer rate hike, and we abandon our previous, out-of-consensus forecast, and now expect the next rate hike to come at the August 22-23 meeting, more or less as we expected before the February rate hike. As difficult as it is to take losses on negative-carry positions, it is we who must take responsibility for having misjudged the BoJ’s level of conviction.