Bank of Japan board members discussed the possibility of further interest rate hikes if a weak yen continues to accelerate inflation, a summary of their opinions at a policy-setting meeting in April showed Thursday.
Some members also underlined the need to reduce the BOJ's buying of Japanese government bonds, a step toward eventually trimming its expanded balance sheet after years of powerful monetary easing to achieve its 2 percent inflation goal.
The focus of the April 25-26 meeting was on how to address the rapid weakening of the yen. The Policy Board left monetary policy unchanged, with short-term interest rates guided in a range between zero and 0.1 percent.
BOJ chief Kazuo Ueda's comments at a post-meeting press conference suggesting the immediate impact of the weaker yen on inflation was negligible accelerated the currency's fall, apparently prompting Japanese authorities last week to intervene.
"The yen's depreciation and high crude oil prices have weakened the premise that cost-push factors will wane. Therefore, attention is warranted on the risk that prices will deviate upward from the baseline scenario," a member said.
Another said the weaker yen would hurt the economy in the short run by raising import costs, but it would boost inbound tourism and heighten inflation expectations in the medium to long term.
Japan's inflation has been rising, due in large part to higher costs for imported energy and raw materials amid the yen's weakness, a reflection of the BOJ's policy divergence with its peers like the U.S. Federal Reserve, which has rushed to raise interest rates.
Several members underlined the need to adjust the policy rate as inflation nears the BOJ's 2 percent target, with one of them saying the rate will likely be "higher than the path that is factored in by the market."
Core-core consumer prices, used to see underlying inflation trends by excluding volatile energy and fresh food items, are expected to rise 1.9 percent in the current fiscal year and the next.
Financial markets are looking for clues about the timing of the next rate hike and when the BOJ will cut the amount of government bonds that it buys, currently set at around 6 trillion yen ($39 billion) per month.
A member said, "It is important for the bank to proceed with reducing its purchase amount of JGBs (Japanese government bonds) in a timely manner" and "normalize" its holdings.
The summary of opinions was compiled by the governor and comments were not attributed to individual members.
