BOJ minutes show policymakers warned of being behind the curve on inflation

Minutes released this week from the Bank of Japan’s policy deliberations show a clear hawkish thread among some board members who warned that rising wages, a weak yen and stronger overseas growth could propel inflation higher and risk the central bank being “behind the curve.” The language marks a shift in emphasis as Tokyo grapples with exchange-rate moves and volatile bond markets while maintaining its recent tightening cycle.

The minutes record members flagging how a depreciating yen can amplify price pressures through higher import costs and by changing firms’ pricing behavior. “With firms' behavior shifting more toward raising wages and prices, the yen's depreciation would more likely push up prices through factors such as rising import prices,” some members said in the minutes. Other passages stressed that, although tackling currency swings is not the purpose of monetary policy, the BOJ should consider the yen’s slide when judging inflation and the timing of future rate moves. “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,” the minutes quoted some members as saying.

Policy board members also signalled readiness to continue lifting rates if economic and price forecasts play out. “Given current very low real interest rates, members agreed it was appropriate to continue raising interest rates if their economic and price forecasts materialise,” the minutes showed. The central bank’s policy rate was described in reporting of the meeting as having been raised to a three-decade high in the bank’s final decision of 2025; one published account cited the policy rate at 0.75 percent. That tightening context underpins the discussion about whether further hikes will be needed to prevent policy from lagging inflation.

Market conditions are sharpening the dilemma. The minutes and related market commentary point to the yen weakening to nearly 160 against the dollar earlier this month, levels not seen since July 2024 when the government conducted record-scale yen-buying operations. Officials have signalled they stand ready to act to stabilise the currency, while noting that intervention decisions rest with the finance ministry. Members also flagged sharp moves in Japanese government bonds and said developments in long-term interest rates should be monitored carefully; one member suggested the yen’s fall and rising long-term rates were partly a sign that the policy rate had been too low relative to inflation.

The interaction of wage growth, import-cost pass-through and global demand forms the core risk the minutes identify. Several members worried that improving overseas growth could add to domestic price momentum even as households face squeezed purchasing power from a weaker currency. Separately, analysts have pointed to episodes of JGB volatility and spillovers into global bond markets that have heightened market attention to Japan’s fiscal and monetary mix.

For investors and policymakers, the takeaway is that the BOJ is increasingly treating exchange-rate and bond-market developments as integral to its inflation assessment. That raises the odds of further rate moves this year if wages and import costs continue to strengthen, and keeps the prospect of coordinated market intervention on the table if currency moves threaten price stability.