A summary of opinions from the Bank of Japan’s July 31 board meeting showed that authorities believed monetary policy would remain accommodative even as they conducted a small interest rate hike.

“It should be noted that raising the rate at a moderate pace means an adjustment in the degree of monetary accommodation in accordance with underlying inflation, which will not have monetary tightening effects,” one of nine board members said, according to the summary released Thursday. 

At that meeting, the central raised its benchmark interest rate to 0.25% while also unveiling plans to halve the pace of its monthly bond buying by the first quarter of 2026. Governor Kazuo Ueda said after the meeting that the BOJ will raise the rate further if growth and inflation trends develop in line with its forecasts, which struck some analysts as hawkish.

Another comment emphasised that even with the hike, real interest rates would remain well below the neutral rate, indicating a view that policy continuity was intact overall. “As the level of the neutral rate seems to be at least around 1%, in order to avoid rapid hikes in the policy interest rate, the bank needs to raise the policy interest rate in a timely and gradual manner,” one member said. 

In the days following the rake hike, Japanese stock markets experienced massive swings along with the yen, as traders anticipated a narrowing of the interest rate gap between the US and Japan. On Wednesday, deputy governor Shinichi Uchida said the BOJ won’t raise interest rates when financial markets are unstable, a reassurance that helped buoy stocks and sent the yen lower.

In the summary, some called for a cautious approach to rate policy at a time when the economy remains fragile. The vote for the rate hike was seven to two, with board members Toyoaki Nakamura and Asahi Noguchi dissenting. The summary doesn’t say which board members said what. 

“It is necessary to more carefully assess how the economic situation has improved with wage hikes becoming widespread, based on relevant data, as there are many data sets showing somewhat weak developments in, for example, the economic growth rate and private consumption,” one member said.

Another member dissented citing weak economic indicators.  

“There is little data confirming sustainable growth in Japan’s economy at this point,” one member said. “I am therefore dissent on raising the policy interest rate.” 

Regarding cutting the BOJ’s monthly purchases of sovereign debt, one member said it will take a long time to normalise the bank’s balance sheet with the side effects of its large bond holdings likely to linger.

  - Bloomberg