Minutes from the Bank of Japan's June 15-16 Monetary Policy Meeting, released Wednesday, show the Policy Board voted 7-1 to raise the policy interest rate by 0.25 percentage points to around 1.0%, concluding that the balance of risks had shifted toward the need to guard against inflation overshooting its target. The move brings the policy rate to a symbolic 1% threshold, the latest step in a normalisation cycle that began when the Bank exited negative interest rates in early 2024 after years of ultra-accommodative policy.

Asada Toichiro was the lone dissenter, arguing that downside risks to production and employment stemming from the Middle East conflict outweighed the upside risks to prices. Along with the rate increase, the board raised the interest rate on the complementary deposit facility to 1.0% and increased the basic discount and loan rates to 1.25%.

The minutes indicate that most members judged Japan's economy to be developing broadly in line with the baseline scenario in the April 2026 Outlook Report, with growth continuing at a moderate but decelerating pace. Members cited high corporate profits, supported by strong global AI-related demand, resilient private consumption and continued tightness in the labour market as key supports for the economy, even as higher energy and raw material costs weighed on activity.

Several members said concerns about a sharper slowdown had eased since the previous meeting, pointing to progress in securing alternative supplies for raw materials that had previously depended heavily on the Middle East. Spring wage negotiations were also described as a source of reassurance, with agreed pay rises running at about 5% for a third consecutive year across both large and smaller firms. Sustained wage growth of that magnitude has been central to the Bank's efforts to anchor a self-reinforcing cycle between pay and prices — a dynamic largely absent during Japan's prolonged period of low inflation.

On inflation, the board focused on the risk that underlying consumer price growth could move above the 2% target rather than fall short of it. Members said the pass-through of high crude oil costs into business-to-business prices had advanced relatively quickly, with the producer price index rising sharply, and that the pressure was expected to spread more broadly into consumer prices. Although the headline consumer price index had recently eased to around 1.5%, members said this was largely due to temporary government measures to reduce household energy costs rather than a genuine easing in underlying price pressure.

Medium- to long-term inflation expectations were also seen as having increased moderately, strengthening the case for continued policy adjustment. Looking ahead, the board expects underlying CPI inflation to reach a level generally consistent with the 2% target between the second half of fiscal 2026 and fiscal 2027.

The minutes also describe an extended debate over the Bank's bond-buying programme. The board voted 7-1 to keep the existing pace of Japanese government bond purchase reductions at about 200 billion yen per quarter through January-March 2027, then halt further tapering from April 2027 and maintain monthly purchases at about 2 trillion yen. The decision was based on the need to allow private investors time to absorb a shrinking central bank footprint without destabilising the market. The stakes are considerable: the Bank holds roughly half of all outstanding Japanese government bonds, a legacy of years of massive purchases under yield-curve control, making the pace of its withdrawal a critical question for bond-market liquidity.

Tamura Naoki opposed that approach, proposing instead that the reduction continue at the same pace through January-March 2028 on the view that long-term rates should be left to market forces with minimal central bank intervention. His proposal was defeated by a wide margin.

Members broadly agreed that even after the pace of reduction is halted, the Bank's balance sheet will continue to shrink steadily as existing holdings mature. Several members said that point should be communicated clearly to the public.

Throughout the discussion, members repeatedly identified the future course of the Middle East conflict and its effects on oil prices, logistics and inflation expectations as the main risk factor to monitor when deciding the pace of further policy adjustments.

Full text here:

Minutes of the Monetary Policy Meeting on June 15 and 16, 2026

Bessent had some advice for the BoJ earlier:

US Treasury Secretary Bessent waffling on about the yen and BoJ