In this global financial market storm, the unexpected rate hike by the Bank of Japan in July became one of the roots of the chaos.

On Thursday, the Bank of Japan released the summary of the opinions of the July policy meeting. The summary shows that the Bank of Japan debated further interest rate hikes in July and some board members believed that it was necessary to continue to hike rates.

This week, the Japanese stock market has experienced a thrilling roller coaster ride, with the yen also experiencing significant volatility in the previous wave of gains.

After the big defeat on Monday, the Japanese stock market recovered lost ground for two consecutive days, but today it fell again.

As of press time, the Nikkei 225 index is down 1.26% to 34,666.83 points; the TOPIX index is down 0.82% to 2,468.75 points. The USD/JPY is slightly down 0.02% to 146.72.

What signals does the summary of the July meeting reveal?

The summary of the Bank of Japan's July meeting shows that the development of Japan's economic activity and prices is consistent with the Bank of Japan's outlook. The actual interest rates are at the lowest point in 25 years. The Bank of Japan raising policy rates and adjusting the degree of monetary easing is appropriate.

Among the nine members of the Policy Board, some believe that the real interest rates after inflation adjustment will still be very low even after the interest rate hike.

This means that the Bank of Japan may continue to support the economy with loose monetary policy.

One member pointed out that if companies continue to raise prices and wages and increase capital spending, the Bank of Japan may need to further adjust the degree of monetary easing even after the interest rate hike in July.

Another member called for a timely and gradual increase in interest rates, as Japan's neutral interest rate seems to be at least around 1%.

The summary mentioned that the disagreement lies in the timing, with some wanting more data before taking action and others ready to act immediately.

Bank of Japan members expect that a slight interest rate hike will not have a tightening effect, and they urge a timely interest rate hike to avoid the need for a rapid interest rate hike.

The summary also pointed out that the members set a neutral interest rate of at least around 1% as a medium-term target; the plan to reduce purchases of Japanese government bonds is seen as promoting market operations rather than tightening.

In addition, the Bank of Japan needs to carefully monitor the Japanese government bond market as it cuts purchases. The debate on the sustainability of inflation/wage growth cycles is still ongoing.

The unwinding of arbitrage trades has not ended yet.

Recently, the Bank of Japan's tightening of monetary policy has caused a huge shock in the Japanese stock market and led to global market turmoil.

At the interest rate meeting in July, the Bank of Japan raised the short-term policy rate target from 0-0.1% to 0.15%-0.25% and gradually reduced the monthly bond purchase scale to 3 trillion yen.

Subsequently, the yen began a rapid appreciation and the Japanese stock market crashed.

In addition, the Bank of Japan's hawkish interest rate stance is under pressure due to concerns about further rate hikes and yen appreciation, which has put its interest rate hike stance under challenge.

Yesterday, in order to soothe the market, Bank of Japan Deputy Governor Masaji Ueda sent a strong dovish signal, stating that interest rates will not be raised when the market is unstable. He pointed out that authorities need to monitor the potential impact of market volatility on prices and the overall economy, and the trajectory of Japanese interest rates may change accordingly.

Today, Japanese Finance Minister Taro Aso stated that the specific details of monetary policy are decided by the Bank of Japan, and he closely monitors market dynamics. He declined to comment on Bank of Japan Deputy Governor Ueda's comments. However, Toru Suehiro, chief economist at Daiwa Securities, said that given that opinion polls suggest a generally positive assessment of last week's rate decision, the rate hike cycle itself may not yet be over.

As for the timing of the Bank of Japan's rate hike in July, Nomura Securities analyst Christopher Willcox said that the decision was appropriate. "If they don't start taking action, the size of arbitrage trading will only get bigger, and the Bank of Japan is very smart." He also pointed out that after many traders closed their positions due to the Bank of Japan's rate hike, there is still room for arbitrage trading to close further. Similarly, Arindam Sandilya, a strategist at JPMorgan, also issued a warning that as the yen remains one of the most undervalued currencies, there is still greater room for arbitrage trading to close in the near term. He pointed out that yen arbitrage trading has only been completed 50-60%, and short-term fluctuations have not really ended, it is just slower than before.

However, Toru Suehiro, chief economist at Daiwa Securities, said that given that opinion polls suggest a generally positive assessment of last week's rate decision, the rate hike cycle itself may not yet be over.

As for the timing of the Bank of Japan's rate hike in July, Nomura Securities analyst Christopher Willcox said that the decision was appropriate.

"If they don't start taking action, the size of arbitrage trading will only get bigger, and the Bank of Japan is very smart."

He also pointed out that after many traders closed their positions due to the Bank of Japan's rate hike, there is still room for arbitrage trading to close further.

Similarly, JPMorgan strategist Arindam Sandilya issued a warning that as the yen remains one of the most undervalued currencies, there is still greater room for arbitrage trading to close in the near term.

He pointed out that yen arbitrage trading has only been completed 50-60%, and short-term fluctuations have not really ended, it is just slower than before.