BoJ minutes: Continued policy rate increases appropriate, members agree

September meeting minutes released on Thursday set out the Bank of Japan (BoJ) board members’ monetary policy outlook, according to the BoJ record of the meeting.

Key Policy Views

Continuing to raise the policy interest rate and adjusting the degree of monetary easing remained appropriate, members agreed.

Moving the policy interest rate nearer its target relatively soon would be preferable, one member said, while retaining flexibility to make rapid adjustments in either direction.

Demonstrating BOJ's determination to prevent upward price deviations through a nimble response to global economic conditions was important, one member said.

The Cabinet Office representative expects the central bank to account for its meeting decisions and scrutinise the cumulative impact of previous interest rate policies.

Rate increases would need to accelerate if signs of upward price deviations emerged, one member observed.

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Bank of Japan: Key Questions

The Bank of Japan’s Role

An inflation target of around 2% underpins the price stability mandate of the Bank of Japan (BoJ). As Japan’s central bank, it determines the country’s monetary policy. Its remit covers issuing banknotes and managing currency and monetary conditions to maintain stable prices.

The Bank of Japan’s Policy Path

In 2013, the Bank of Japan adopted an ultra-loose monetary stance to support economic activity and lift inflation from low levels. Quantitative and Qualitative Easing (QQE) forms the basis of this policy: the bank prints money to purchase assets, including government and corporate bonds, and inject liquidity. Further easing followed in 2016 as the bank reinforced its approach, introducing negative interest rates before taking direct control of the yield on its 10-year government bonds. A rate increase in March 2024 marked the BoJ’s effective retreat from its ultra-loose stance.

Bank of Japan Decisions and the Japanese Yen

Against other major currencies, the Yen weakened under the Bank’s large-scale stimulus programme. The decline intensified in 2022 and 2023 as policy at the Bank of Japan increasingly diverged from that of other major central banks. Those banks raised interest rates sharply to tackle inflation at multi-decade highs. A widening interest rate differential resulting from the BoJ’s policy weighed on the Yen. In 2024, the currency partly reversed this trend after the BoJ opted to exit its ultra-loose policy stance.

Drivers of the Bank of Japan’s Exit From Ultra-Loose Policy

Inflation in Japan rose above the BoJ’s 2% target as Yen weakness and surging global energy prices pushed prices higher. Expectations of domestic wage increases, a key driver of inflation, also helped prompt the policy shift.