Core Viewpoint - The Bank of Japan (BOJ) is experiencing internal divisions regarding its monetary policy communication strategy, with some members advocating for a shift away from the ambiguous "potential inflation" metric towards a more hawkish stance, potentially paving the way for an interest rate hike in October [1][2]. Group 1: Internal Disagreements - Some BOJ policymakers are concerned that "second-round inflation effects" are forming, suggesting that inflation may become entrenched in corporate pricing behavior and public expectations [2]. - There is a call among committee members to shift the focus of communication from "potential inflation" to actual price trends, output gaps, and inflation expectations [2]. - Members such as Naoki Tamura, Haruka Takada, and Junko Oda emphasize that rising food prices could lead to broader and more persistent inflation risks, although there is no consensus on changing the communication strategy [2]. Group 2: Economic Outlook and Rate Hike Potential - The BOJ ended a decade-long ultra-loose monetary policy last year and raised short-term interest rates to 0.5% in January, but the timing for the next rate hike has become complex due to external economic pressures [3]. - Following a trade agreement with the U.S. in July, the BOJ's pessimistic view on economic prospects has eased, leading some members to call for adjustments to the dovish communication approach [3]. - Observers suggest that the BOJ may gradually eliminate the "potential inflation" concept from its communications in preparation for a possible rate hike as early as October [3].

Group 1 - The Bank of Japan (BOJ) is experiencing internal disagreements regarding its monetary policy communication strategy, with some members advocating for a shift away from the ambiguous "potential inflation" metric towards a more hawkish stance [1][2] - The concept of "potential inflation" has been criticized for its lack of a unified statistical method, especially as the core consumer price index has exceeded the BOJ's 2% target for over three years, reaching 3.3% in June, driven by an 8.2% surge in food costs [1][2] - Some BOJ policymakers are concerned about the formation of a "second-round inflation effect," where inflation expectations become entrenched in corporate pricing behavior and public sentiment, prompting calls for a focus on actual price trends and inflation expectations [2][3] Group 2 - The BOJ ended a decade-long ultra-loose monetary policy last year and raised short-term interest rates to 0.5% in January, but the timing for the next rate hike has become complex due to external economic pressures [3] - Recent trade agreements with the U.S. have improved the BOJ's economic outlook, leading some members to call for adjustments to the dovish communication style, indicating a heightened awareness of inflationary pressures [3] - Observers suggest that the BOJ may phase out the "potential inflation" concept in its communications as it prepares for a possible rate hike as early as October [3]