Policy Board members said financial conditions remain accommodative, with one favoring hikes once every few months as oil, yen weakness and inflation risks stay in focus.
Bank of Japan June meeting minutes showed several Policy Board members believed financial conditions remained accommodative even after the central bank raised its policy rate to around 1.0% from around 0.75%, and they argued that further rate increases should continue. One member said it was desirable to consider rate hikes once every few months, while another called for moving toward the neutral interest rate (a level that neither stimulates nor restrains the economy) as early as possible. The June increase took the uncollateralized overnight call rate to its highest level since 1995. The discussion underscored rising concern inside the BOJ over upside inflation risks, particularly from higher crude oil prices linked to worsening Middle East tensions. Members said rising resource costs could lift companies' burdens and speed the pass-through to consumer prices, creating a risk that underlying inflation overshoots the BOJ's 2% target. The board also examined whether a wage-price cycle was taking hold after strong shunto (Japan's annual spring wage talks) outcomes, with some members saying price increases accompanied by wage gains were becoming entrenched, though concerns remained over weak personal consumption under negative real wages. The minutes also fed expectations that the BOJ could continue policy normalization from July onward, even as some investors still expect no move at the next meeting. Markets may increasingly price in a September hike, especially as yen weakness and exchange-rate-driven import inflation remain under scrutiny. The June meeting also produced a decision to reduce Japanese government bond purchases, reflecting what the minutes described as a multi-faceted normalization through both interest rates and the balance sheet. Governor Kazuo Ueda had stressed a data-dependent approach after the meeting, but the minutes suggest some board members may interpret that stance in a more proactive way.