Some Bank of Japan policymakers urged the central bank to speed up the pace of interest rate rises at its October meeting, a summary of their discussions showed on Tuesday, strengthening the case for another hike before the end of the year.

The Summary of Opinions from the Bank of Japan's meeting on 29 and 30 October showed a board split over how quickly to move, but with the hawkish voices growing louder now that underlying inflation has reached the bank's 2% target.

One member said the central bank should deliver its next rate rise "without becoming overly cautious", signalling that an increase could come at the next meeting in December. Another said Japan had entered a "new phase" in which the bank needed to step up the pace of bringing its policy rate to neutral, noting that the effects of past rises had yet to feed through and financial conditions remained accommodative.

Two other members also called for the policy rate to be lifted to a level deemed neutral for the economy soon, according to the summary.

Caution over weak spending

Not all members agreed. Several warned against moving too hastily, pointing to soft household spending and uncertainty over how long demand linked to artificial intelligence will last.

Official data published on Tuesday showed Japanese household spending fell 6.8% in September from a year earlier, the tenth consecutive monthly decline and a bigger drop than markets had expected. The internal affairs ministry blamed poor weather, with rain recorded in Tokyo on every day of the month for the first time on record.

One member said the bank needed to scrutinise "a little more" the risks around economic activity and prices, while another said it should watch financial conditions for a few months after each rise before moving again.

December hike in view

At the October meeting the Bank of Japan held its key policy rate at 1.25%, but declared victory in its 14-year battle to reach its price target and flagged upside risks to prices, reinforcing its hawkish stance. The decision was taken by eight votes to one, with board member Hajime Takata dissenting in favour of an immediate rise to 1.5%.

Analysts polled by Reuters expect the bank to raise its policy rate to 1.5% at its next meeting on 17 and 18 December, and then to keep raising rates roughly once a quarter. Bank staff estimate Japan's neutral rate, the level that neither cools nor overheats the economy, at between 1.1% and 2.5%, while hawkish board member Naoki Tamura has put it at around 2%.

The yen was trading at around 158 per dollar on Tuesday, having been the best-performing major currency against the dollar over the past six months after heavy official intervention.

The summary is an anonymous digest of the views expressed by the nine board members and government representatives at the meeting. The full minutes of the October meeting are due on 23 December.