BoJ dissent and BoE on hold for now

The day that is

Overnight, the BoJ raised its policy rate by 25 bps to 1.25%, marking the central bank’s sixth hike under Governor Ueda. What caught my eye was not the rate decision, as this was widely priced in, but the composition of the vote.

Two board members, both seen as allies of PM Takaichi's more cautious stance on tightening, dissented. That split was enough to convince markets this was a more dovish outcome than the headline rate suggests, and the JPY promptly weakened rather than strengthened on the news, sending the USD/JPY screeching toward the ¥157 handle.

This follows unusually direct pressure from US Treasury Secretary Scott Bessent, who has been vocal in pushing Japan toward more decisive tightening to shore up the currency. With the Fed's 25-bp hike this week unanimous, and the ECB tightening last week, this is the first month on record when the Fed, ECB and BoJ have all raised rates in the same window, which really does serve as a reminder of how synchronised the global inflation fight has become.

The day that was

The BoE left the bank rate unchanged at 3.75% yesterday, a move that markets and economists had largely priced in. The 6-3 MPC vote split was also unchanged and, as expected, Megan Greene, Catherine Mann and Huw Pill voted to increase the rate to 4%.

The key takeaway from this meeting was that the MPC is prepared to increase rates if energy prices remain elevated, with members explicitly stating risks are now tilted further to the upside than in July, despite limited pass-through (second-round effects) so far. Interestingly, members now see inflation reaching just north of 4% early next year, up from the 3.2% peak expected in the July report. 

Ultimately, with the growing hawkish dissent at the BoE, this should be modestly supportive for the GBP. However, ahead of the next meeting in early November, I think it all depends on whether the conflict in the Middle East has de-escalated or continues to drag on and keep energy prices elevated. Markets already price a slightly steeper path than before (OIS curve peaking near 4.9% by end-2027), and a further leg up in oil/gas prices or a stronger-than-expected wage/pay-settlement reading before November could tip the balance toward a hike at the next meeting.

Market snapshot this morning:

Asia-Pac trading saw equities broadly firmer following the BoJ decision, with Japan's Nikkei extending gains to around 1.6% on the softer yen, though the broader Topix is little changed, held back by weakness in financials.

This follows a notably strong session in the US on Thursday, where all major indices finished firmly in the green. The S&P 500 added 1.1%, while the Nasdaq Composite outperformed with a gain of about 1.7%. S&P sector performance showed technology (XLK) led the charge, up more than 2%, with consumer discretionary (XLY) names not far behind at 1.1%.

For bonds, US Treasury yields eased across the curve yesterday, with the 2-year around 4.66% and the 10-year at 4.93%, as markets digested the prospect of the Fed's tightening cycle nearing its later stages. Oil also pulled back for a second straight session, while crypto-linked equities came under pressure after the Clarity Act failed to advance through Congress.