It was deemed appropriate for the Bank of Japan to continue raising policy interest rates and to gradually scale back monetary accommodation, according to the minutes from the July meeting, as underlying CPI inflation approached the 2% target and financial conditions remained accommodative. Members highlighted the need for preemptive action against upside inflation risks to avoid having to implement rapid rate hikes later, noting that the current policy rate is still below the estimated neutral range.
One member pointed out that markets appear to be pricing in rate increases roughly every six months, but cautioned that the pace of tightening could accelerate if inflation risks intensify. The timing of further adjustments, members agreed, should be based on the baseline economic outlook as well as risks arising from Middle East tensions, demand related to artificial intelligence, and exchange rate developments.
Policymakers underscored that the policy focus is shifting from pushing inflation up to firmly anchoring it at 2%. They warned that if upside risks to inflation are left unaddressed, the resulting economic damage could force more abrupt policy moves. One member cautioned that postponing necessary tightening could lead to a “double shock” for the economy, reinforcing the need for agile and responsive monetary policy.
