Bank of Japan policymakers agreed at their September meeting that the central bank should keep raising interest rates, according to minutes released on Thursday, with some members arguing for a faster pace if prices threaten to overshoot. At that meeting on 17 and 18 September, the board raised its policy rate by 25 basis points to 1.25%, the highest since 1995, in a 7-2 vote.
Members agreed it was appropriate to keep lifting rates and adjusting the degree of monetary accommodation, given that underlying inflation was approaching 2% and financial conditions remained accommodative. The minutes, released on 5 November, predate the October 29–30 decision. In October the bank held rates at 1.25%, saying underlying inflation had reached levels consistent with its target.
JAPAN’S BANKS AND A RISING RATE
Domestically licensed banks held ¥1,506.0tn of assets at end-August 2026, and city banks accounted for about half at end-July 2026, according to TGB’s market profile of Japan.
MUFG, Sumitomo Mitsui Financial Group and Mizuho are all global systemically important banks, with Japan Post Bank, Norinchukin, trust bank groups and Resona in the next tier. The regional tier comprised 97 banks at end-March 2026, many serving shrinking local economies, with 247 shinkin banks beneath them.
A BOARD DIVIDED ON PACE
One member said the goal was no longer to push underlying inflation higher but to stabilise it around 2%. Another said the bank would need to speed up its rate rises if signs of an upward deviation in prices emerged, while a further member favoured bringing rates closer to the neutral level relatively soon to leave room to move in either direction.
Not everyone was in a hurry. One member said underlying inflation was not accelerating fast enough to risk the bank falling behind the curve, so hasty action was unnecessary. The two dissenters, Toichiro Asada and Ayano Sato, preferred to hold at 1%: Asada argued that with core inflation below 2% the economy could not necessarily be called strong, while Sato said economic and price trends had not substantially accelerated.
Most members considered underlying inflation to be approaching 2%, while Takata and Tamura believed it was already broadly consistent with the target. Both supported the rate rise but objected to parts of the accompanying inflation assessment, according to a summary by ActionForex.
OIL, THE YEN AND THE NEUTRAL RATE
One member noted that crude prices had risen about 50% since July while the yen had appreciated about 5%, which would push up consumer prices considerably if sustained. A few members flagged the tail risk of physical shortages of crude, citing the suspension of Saudi Arabia’s pipeline operations, unstable shipping through the Red Sea and falling reserves in the US and China. Members also said strong global AI demand was supporting Japanese exports and investment while raising costs for semiconductors and other inputs.
One member noted that a market gauge of the expected peak in rates had risen above 2%, while another said market expectations for rate rises appeared somewhat ahead of the economy. Many agreed that the neutral rate could not be identified precisely in advance. The Cabinet Office said the bank should examine carefully the cumulative effects of past rises and consider its neutral rate estimates.
THE TGB VIEW
MUFG, 10th in the TGB Bank Rankings with a 10.9% return on equity, and the rest of Japan’s banks face a board that agreed to keep lifting rates and argued mainly over speed. One member put a market gauge of the expected peak in rates above 2%, against a policy rate of 1.25%, while another said market expectations appeared somewhat ahead of the economy. The next markers are Governor Ueda’s lecture in Washington on 6 November and the policy meeting on 17 and 18 December.
Related: Bank of Japan holds at 1.25% and more than doubles ETF sales to 860 billion yen a year
Bank news that matters, every weekday.
Follow The Global Banker on LinkedIn