BOJ

According to the minutes of the July monetary policy meeting released by the Bank of Japan (BOJ) on Thursday, Policy Board members called for an appropriate increase in interest rates. Many members shared the recognition that upside risks to prices required attention in conducting monetary policy. Some members expressed the view that it was appropriate to start gradually adjusting the significantly low policy interest rate at this stage, in order to prevent rapid policy interest rate hikes necessary at a later time.

On September 24, Bank of Japan (BoJ) Governor Kazuo Ueda said that Japan's economic activity and price trends largely align with the BoJ's projections, noting a moderate rise in underlying inflation. He affirmed the BoJ's readiness to flexibly adjust monetary policies based on changes in economic activities and prices, adding that policy interest rates will be adjusted upward if inflation progresses as forecast.

At the Monetary Policy Meeting held on September 20, the Bank of Japan decided, by a unanimous vote, to keep the overnight call rate unchanged at around 0.25 percent, which is in line with market expectations. The Bank of Japan indicates that inflation expectations have risen moderately, which is likely to be at a level that is generally consistent with the price stability target in the second half of FY2026.

Japan's economy has recovered moderately, although some weakness has been seen in part. The year-on-year rate of increase in the CPI (all items less fresh food) has been at around 2.5 percent recently, as services prices have continued to rise moderately.Inflation expectations have risen moderately.

According to the Bank of Japan's (BOJ) Summary of Opinions at the July 31 Monetary Policy Meeting, several members said that the small rate hike is an adjustment to the degree of monetary easing and will not have monetary tightening effects. Some believe that as the level of the neutral rate seems to be at least around 1 percent, in order to avoid rapid hikes in the policy interest rate, the BOJ needs to raise the policy interest rate in a timely and gradual manner.

On August 7, Bank of Japan (BOJ) Deputy Governor Uchida Shinichi said that the BOJ will not raise interest rates when financial and capital markets are unstable and it needs to maintain monetary easing.

The employment and income situation had improved moderately. Inflation expectations had risen moderately.Japan's economy had recovered moderately, although some weakness had been seen in part.

The Bank of Japan raised its policy rate unexpectedly by 15 basis points to 0.15%-0.25% on Wednesday. If the positive outlook for economic activity and inflation continues, the BOJ will accordingly continue to raise the policy interest rate.