The Bank of Japan (BOJ) disclosed in the meeting minutes from December last year, released on Wednesday (January 28), that it considers the weakening of the Japanese yen and inflationary pressures caused by labor shortages as key factors in deciding whether to further raise interest rates.
The discussion during the meeting reflected that despite the BOJ having already raised the policy interest rate to 0.75% in December, marking a new high in 30 years, the BOJ Policy Board is still prepared to continue raising rates in the future to increase the still low borrowing costs.
Some members pointed out that considering the inflation factors, the current real interest rate remains significantly negative, indicating that the financial environment remains accommodative and supportive of the economy.
The minutes of the meeting showed that all nine members of the Policy Board unanimously agreed that future rate hikes would depend on the achievement of economic growth targets and the outlook for price inflation.
Some members lean towards a cautious approach to future rate hikes, while others noted that as businesses pass on wage increases and raw material costs to consumers, inflation is becoming more persistent and stubborn.
Several members expressed concerns that the weak yen is driving up import costs, and with more companies actively raising wages and prices, this further exacerbates inflationary pressures.
Regarding the pace of future rate hikes, the meeting records indicated that although most members believe the BOJ should not pre-set a timeline for rate hikes, one member suggested gradually tightening policies at “intervals of several months” due to the current policy rate still being far below the “neutral” level.
Another member emphasized the need to assess broader indicators, including anecdotal observations and empirical data, to determine if a moderate and sustained mechanism for wage and price increases has already formed.
The weakening of the Japanese yen has become a focus of concern for policymakers, as it impacts household economies by raising living costs, and the issue of living costs is also a core topic for the February 8th Japan General Election.
Regarding the impact of exchange rates, the meeting minutes quoted some members stating, “While managing exchange rate volatility is not the goal of monetary policy itself, when deciding whether to raise policy interest rates, the BOJ should consider the impact of yen depreciation on inflation rates and in some cases, assess its impact on potential inflation.”
One member pointed out in the minutes that yen depreciation and the rise in long-term interest rates partly stem from the BOJ’s policy interest rate being relatively low compared to the inflation rate. This member stated, “Timely raising the policy interest rate can restrain future inflation pressures and lower long-term interest rates.”
Following the Japanese yen’s exchange rate, which approached the key level of 160 yen per US dollar in early January and rebounded over 3% in the past two trading days to around 153 yen per dollar, there was unanimous approval for the rate hike decision, but the meeting records also showed that the members have slightly differing views on the completion of the price target.
Several members expressed that, regarding the economic and price situation, “If the impact of future food price increases gradually weakens, we can expect actual wages growth rate to turn positive.” One member analyzed, “The actual wage growth rate is expected to turn positive and remain stable in the first half of 2026.”
BOJ Policy Board members Hajime Takata and Naoki Tamura expressed dissent in their post-December meeting statements regarding the “price outlook,” as they believe Japan is already or is about to achieve price stability targets, expressing a more positive stance than the official statement.
The Core Consumer Price Index (CPI) released by the Statistics Bureau of Japan last Friday (January 23) showed that as of December 2025, Japan’s core CPI was 2.1%, exceeding the BOJ’s 2% target for the fourth consecutive year.
In fact, Hajime Takata had urged for a quick rate hike during the BOJ meeting on January 23, but lacked support from other members at the time, leading to the decision to hold off on the rate hike.
The outcome of the meeting has led the market to speculate that the additional inflationary pressure brought about by the weak yen may prompt the BOJ to raise rates again in the coming months.
A Reuters survey earlier this month indicated analysts expect the BOJ to wait until July before raising rates again, with over 75% of respondents predicting rates to rise to 1% or higher by September. The swap market believes there is an 80% probability the BOJ will raise rates to 1.0% before April, given the expectation that the recent depreciation of the yen will accelerate inflation.
(Adapted from a report by Reuters)