TOKYO - A Bank of Japan policymaker said at its September monetary policy meeting that the central bank had entered a new phase in which the size of interest rate hikes needed to be debated, according to the minutes released Thursday.
The minutes showed that many policymakers saw a risk of inflation exceeding the BOJ's 2 percent target and agreed that the central bank should continue raising interest rates.
The BOJ decided at the Sept. 17-18 meeting to raise its policy rate to 1.25 percent from 1.0 percent, the first increase in three months and the shortest interval between hikes since it ended a decade of unorthodox monetary easing in March 2024.
The move was aimed at curbing excessive inflationary pressures from rising oil prices and a weaker yen. Two board members dissented from the decision.
The policymaker noted that the BOJ had raised rates at a moderate pace of twice a year in 2024 and 2025 as monetary policy in Japan diverged from that of other major economies.
As central banks in the United States and Europe had recently shifted toward rate hikes, the policymaker said the BOJ should respond flexibly to overseas developments and "discuss the size of a rate hike, rather than adhering to a certain pace of rate hikes."
The remarks suggest the BOJ may no longer be bound by its usual 0.25 percentage point increments and could adjust the size of rate increases depending on economic and financial conditions.
At the same time, a majority of Policy Board members agreed that monetary conditions would remain accommodative even after the rate hike.
One policymaker said the move would bring interest rates closer to the neutral level, which neither stimulates nor restrains economic activity, allowing the BOJ to make more flexible policy decisions in response to developments in economic activity and prices.
The minutes also said members also discussed how they should consider the neutral interest rate and the terminal policy rate, with a few of them noting that "the levels of the rates estimated in the markets had recently risen overall."
On the timing of further rate hikes, one member said the BOJ should not be overly cautious given the risk of a significant rise in prices, while another who favored maintaining rates said more time was needed to assess trends in private consumption.
At its Oct. 29-30 policy meeting, the BOJ left its policy rate unchanged at 1.25 percent, saying underlying inflation had "generally" reached its 2 percent target after a nearly 14-year effort involving unconventional monetary easing.
Markets are increasingly pricing in another rate hike at the BOJ's next meeting, scheduled for Dec. 17 to 18.
