Bank of Japan Minutes Show Board Cautiously Leaning to Rate Hikes

Japan's inflation and wage gains may be durable, thus justifying higher interest rates, Bank of Japan board members cautiously suggested at their December 2025 policy session, according to meeting minutes released on Wednesday.

At the Dec. 18-19 policy session, Japan's central bankers voted unanimously to raise the key policy rate, aka the overnight call rate, to 0.75% from 0.50%.

However, since the December 2025 meeting, the Bank of Japan has met again in policy session on Jan. 22 to 23, but left rates unchanged.

The central bank lifted its key policy rate to 0.75% in the December 2025 policy from a negative 0.1% in early 2024 session, as part of a policy of "normalization."

At the time of the December 2025 board meeting, Japan's central bankers were facing inflation rates near 3% on the consumer price index-core (CPI-core), which strips out fresh food prices, and is the central bank's preferred metric.

That level of inflation in November 2025 was above the 2% annual target of the Bank of Japan.

However, in December 2025, inflation across Japan eased, with the CPI-core logging at a 2.4% gain on-year.

In addition, central bank staffers in January forecast that Japan's CPI-core inflation rate would drop to just below the 2% target in fiscal 2026, started on April 1.

With easing inflation, the Bank of Japan may hold steady on rates through much of 2026, recently predicted ING Think, an arm of the Dutch investment house.

"Japanese Inflation has fallen sharply," said ING Think last week. "The Bank of Japan is likely to take a cautious approach to rate hikes amid slowing inflation and increased economic uncertainty."

Bank of Japan staffers in January forecast the nation's economy will expand by 0.9% on year in fiscal 2025 ended March 31, and by 1% in fiscal 2026.

The next Tokyo consumer price index (CPI) report for January is slated for release on Friday.

The pending Tokyo price report is considered a key leading indicator for the nationwide inflation rate, and will no doubt be perused by Bank of Japan officials for clues to the direction of Japan's price picture.