BOJ Holds Rates Steady Amid Internal Dissent, Sparks Market Volatility

The Bank of Japan maintained its benchmark interest rate at 0.5% during its September 18-19 meeting, but revealed unexpected dissent among policymakers. Two of nine board members advocated for a hike, signaling a potential shift in the BOJ's ultra-dovish stance. The yen weakened against the dollar immediately following the release of meeting minutes, while government bond yields edged higher.

Market expectations pivoted sharply, with overnight swaps now pricing in a 70% probability of an October rate hike—a dramatic increase from 40% just weeks prior. The dissent gained attention particularly because it came from traditionally dovish board member Asahi Noguchi, who cited growing inflationary pressures.

The policy divergence reflects deepening concerns about spillover effects from a potential U.S. economic slowdown, even as domestic price pressures mount. Currency markets remain hypersensitive to any indication of Japan moving away from its negative-rate regime, with implications for global liquidity conditions.