BoJ Minutes: Members considered it appropriate for the bank to continue raising its policy interest rate

Further interest rate increases remained appropriate in the view of Bank of Japan (BoJ) board members, who discussed the monetary policy outlook, according to the BoJ September meeting minutes released on Thursday.

What were the 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 to the target relatively soon would be preferable, one member said, while retaining flexibility to make swift adjustments in either direction.

An agile response to global economic conditions was important to demonstrate to markets the BOJ's determination to prevent upward deviations in prices, one member said.

The Cabinet Office representative expects the central bank to explain its meeting decisions and carefully assess the cumulative impact of previous interest rate policies.

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

TMGM Analysis: Financial Market News, Economic Calendar & Market Insights

Bank of Japan: Frequently Asked Questions

What role does the Bank of Japan play?

As Japan's central bank, the Bank of Japan (BoJ) determines the country's monetary policy. Its responsibilities include issuing banknotes and managing currency and monetary conditions to maintain price stability, with an inflation target of around 2%.

How has the Bank of Japan’s monetary policy evolved?

Against a backdrop of low inflation, the Bank of Japan adopted an ultra-loose monetary policy in 2013 to support economic activity and lift inflation. Quantitative and Qualitative Easing (QQE) forms the basis of this approach: the bank prints money to purchase assets, including government and corporate bonds, and inject liquidity. It stepped up the strategy in 2016, easing policy further by introducing negative interest rates before moving to direct control of the yield on its 10-year government bonds. An interest rate increase in March 2024 effectively marked the BoJ's retreat from its ultra-loose policy stance.

How does Bank of Japan policy affect the Japanese Yen?

The Yen weakened against its major currency peers as a result of the Bank's large-scale stimulus. That depreciation intensified in 2022 and 2023 as the policy gap widened between the Bank of Japan and other major central banks, which raised interest rates sharply to combat inflation at multi-decade highs. By widening interest rate differentials with other currencies, the BoJ's policy weighed on the Yen's value. A partial reversal followed in 2024 after the BoJ chose to move away from its ultra-loose policy stance.

What prompted the Bank of Japan to begin reversing its ultra-loose policy?

Japanese inflation rose above the BoJ's 2% target as a weaker Yen coincided with a surge in global energy prices. Expectations of higher salaries in Japan – an important driver of inflation – also helped prompt the policy shift.