The BOJ decided to raise its policy rate to 1.25% today, but the Japanese yen is weaker for it.
USD/JPY has now climbed back above the 157 level, in search of a stronger break to the upside following the decision. The rate hike today was already widely expected, leaving markets focused much more on what the decision says about the next move.
And that is where the 7-2 vote comes in.
BOJ board members Toichiro Asada and Ayano Sato both voted against the rate hike today. But perhaps it is worth noting that they are also the two newest members to the central bank board, having been appointed by Japanese prime minister Sanae Takaichi earlier this year.
Both of them were already known for their more favourable views towards relatively loose monetary and fiscal policy – which is arguably why Takaichi wanted them on the board. And while one can argue that their appointments definitely did shift the composition of the board in a more dovish direction, the vote today provides the clearest evidence yet of how that could matter for the pace of future rate hikes.
The market reaction is definitely one that seems to be that the vote split is making the BOJ look less united behind faster tightening. And that explains why USD/JPY is racing back above the 157 level.
Don’t get me wrong. Seven members are still voting in a more united front at the BOJ, so the decision today is hardly a dovish pivot. However, the more important question for the yen coming into this week was always going to be whether the central bank can keep hiking at the pace markets had started to price in.
And with the two Takaichi-appointed dissents, it shows that the bar for the BOJ has gotten that much higher.
The latest rise in USD/JPY now sees the currency pair push back above the 50.0 Fib retracement level of the sharp drop in early September around 156.64. The break above 157.00 now opens the path towards a potential test of the 61.8 Fib retracement level next at around 157.53. Following that, the 200-day moving average (blue line) at around 158.38 might be an area of interest for buyers if they are to continue this run.
For now, the yen might only be able to take in some comfort if BOJ governor Kazuo Ueda offers some stronger hawkish signals in his press conference later.
At the end of the day, two dissenters are not a big enough hurdle to stop the BOJ from continuing down this path if remaining policymakers stay the course. But just the very fact now that there are two distinct camps, something which has not happened at the BOJ for a long time, is sending a signal to markets that there is at least some reason to question how quickly the next rate hike might arrive.
This article was written by Justin Low at investinglive.com.