The Bank of Japan (BoJ, in the English acronym) deems it appropriate to continue raising interest rates over time, as core inflation approaches 2% and financial conditions remain accommodative, according to the minutes of the monetary policy meeting held on July 30-31.
According to the minutes, many members assessed that the BoJ, which had previously sought to lift core inflation to 2%, is gradually moving to make decisions aimed at anchoring it around that level.
“The Bank will continue to raise interest rates and adjust the degree of monetary accommodation in response to the evolution of economic activity and prices, as well as financial conditions,” the document says.
One participant noted that the market seemed to expect increases at intervals of about six months, but stressed that this pace could change. “The pace of rate hikes could be faster than market expectations, depending on the evolution of economic activity and prices, as well as financial conditions,” the minutes record.
According to the text, another member stated that the focus of monetary policy shifted from bringing core inflation to 2% to avoiding another upside deviation. “It can no longer be said that the risk of waiting is marginal.” Some members, however, noted that timing and pace cannot be fixed in advance and will be assessed at each meeting.
In the July decision, the BoJ kept the policy guidance for the overnight rate around 1.0%, with 8 votes to 1. The board member Hajime Takata was isolated in proposing to raise it to around 1.25%, an argument rejected by the majority, which preferred to monitor the effects of the June increase. Takata argued that the bank needs to react more quickly to the new global environment. “The Bank needs to adopt a swift approach in response to price pressures caused by demand shocks coming from abroad and to changes in external financial conditions,” the minutes say.
The publication also details the inflation backdrop: the consumer price index (CPI) excluding fresh food stood around 1.5% year over year, influenced by government measures to reduce the energy burden on households, while some members noted that, excluding these measures, inflation would be between 2.5% and 3.0%. The producer price index (PPI), for its part, remained above 7%.
In the balance of risks, the committee concluded that risks to activity are generally balanced, but “the risks to prices are tilted to the upside,” citing factors such as energy, exchange rates, and global demand tied to artificial intelligence.
