BoJ Minutes: Members agree BoJ will continue to raise rates if economic price forecasts materialize

Key quotes

Members agreed BOJ will continue to raise rates if economic price forecasts materialize.

Many members said likelihood of economic and price forecast materialising has heightened but must maintain policy to confirm a bit more whether positive wage-setting behaviour will not be disrupted.

Cabinet Office representative said hope BOJ works closely with government, take appropriate monetary policy to stably and sustainably achieve its price target.

Ministry of Finance representative says hope Bank of Japan watches economic developments and closely communicates with markets in guiding policy to stably, sustainably hit price target.

Many members said likelihood of economic and price forecast materialising has heightened but must maintain policy to confirm a bit more whether positive wage-setting behaviour will not be disrupted.

Board members Tamura, Takata proposed raising policy rate to 0.75% from 0.5%, which was turned down by 2-7 vote.

One member said strong chance Japan can be judged to have achieved BOJ price target around spring next year, when it will likely see wage gains needed for achievement of price goal.

A few members said underlying inflation is gradually accelerating but has not yet hit 2%.

One member said fiscal policy is a significant factor in setting economic and price forecasts.

One member stated corporate and household inflation expectations have already reached 2%, must be mindful of upside price risk. Several members stated yen falls could cause inflation overshoot through rising import prices.

Market reaction to the BoJ Minutes

At the time of writing, USD/JPY is down 0.15% on the day at 156.06.

Bank of Japan FAQs

What is the Bank of Japan?

The Bank of Japan (BoJ) is the Japanese central bank, which sets monetary policy in the country. Its mandate is to issue banknotes and carry out currency and monetary control to ensure price stability, which means an inflation target of around 2%.

What has been the Bank of Japan’s policy?

The Bank of Japan embarked in an ultra-loose monetary policy in 2013 in order to stimulate the economy and fuel inflation amid a low-inflationary environment. The bank’s policy is based on Quantitative and Qualitative Easing (QQE), or printing notes to buy assets such as government or corporate bonds to provide liquidity. In 2016, the bank doubled down on its strategy and further loosened policy by first introducing negative interest rates and then directly controlling the yield of its 10-year government bonds. In March 2024, the BoJ lifted interest rates, effectively retreating from the ultra-loose monetary policy stance.

How do Bank of Japan’s decisions influence the Japanese Yen?

The Bank’s massive stimulus caused the Yen to depreciate against its main currency peers. This process exacerbated in 2022 and 2023 due to an increasing policy divergence between the Bank of Japan and other main central banks, which opted to increase interest rates sharply to fight decades-high levels of inflation. The BoJ’s policy led to a widening differential with other currencies, dragging down the value of the Yen. This trend partly reversed in 2024, when the BoJ decided to abandon its ultra-loose policy stance.

Why did the Bank of Japan decide to start unwinding its ultra-loose policy?

A weaker Yen and the spike in global energy prices led to an increase in Japanese inflation, which exceeded the BoJ’s 2% target. The prospect of rising salaries in the country – a key element fuelling inflation – also contributed to the move.