Minutes from the Bank of Japan's December policy session reveal that board members broadly supported further increases in policy rates, with some participants highlighting the role of the weak yen in shaping underlying inflation and the timing of the next rate move. The minutes, published on Wednesday, underline a collective inclination to press ahead with higher borrowing costs even after the central bank lifted its policy rate in December.
The document records a view that, "Given current very low real interest rates, members agreed it was appropriate to continue raising interest rates if their economic and price forecasts materialise." That assessment frames the board's preparedness to tighten policy further should outlooks for growth and inflation evolve as projected.
Several members cautioned that while currency interventions or stabilising markets are not the direct objective of monetary policy, the consequences of the yen’s depreciation cannot be ignored. As the minutes put it, "Although addressing currency market moves is not itself the purpose of monetary policy, the BOJ should give consideration to the impact of the yen’s slide on inflation rates, and in some cases, underlying inflation, in deciding whether to raise the policy rate."
One participant drew a link between the yen's decline, rising long-term interest rates and the level of the BOJ's policy rate, suggesting the central bank's rate may have been too low relative to inflation. That member warned that these dynamics were connected and stated, "Raising the policy rate in a timely manner could curb future inflationary pressure and hold down long-term rates."
The minutes reiterate that the board had already moved in December to increase the policy rate to 0.75%, a level cited as the highest in three decades. The record underscores that the decision to raise rates in December has not closed the debate over further tightening; rather, it leaves open the prospect of additional increases depending on incoming data and inflation trajectory.
The discussion captured in the minutes centres on two themes: the persistence of very low real rates and the potential for currency moves to feed into inflation. Those themes are guiding how members judged the appropriateness and timing of future rate adjustments.
Contextual takeaways
The minutes portray a policymaking body focused on ensuring that policy keeps pace with inflation dynamics while weighing the secondary effects of exchange-rate shifts on price measures. The wording suggests a cautious but resolute stance toward further normalization of borrowing costs.