Bank of Japan policymakers increasingly focused on upside inflation risks at their July meeting, with members saying the bank should continue raising interest rates as underlying inflation approaches its 2% target.
The minutes showed a shift in emphasis from lifting inflation toward keeping it anchored around 2%, as wage gains, higher import costs and rising inflation expectations strengthen price pressures.
Members also noted that the pace of future rate increases could be faster than markets expect, depending on economic and financial conditions.
Underlying inflation was expected to rise clearly above 2% from the second half of fiscal 2026, driven by higher energy and goods prices, continued wage pass-through, stronger prices for semiconductors and other AI-related products, and the weaker yen.
One member noted that more than 70% of CPI items had continued to rise in recent years, while firms were maintaining base-pay increases of around 3%.
Policymakers said stronger global AI demand was supporting Japanese exports, production and investment, while also pushing up prices for semiconductors, nonferrous metals and other inputs.
Higher crude oil prices could raise import costs and consumer prices, while a prolonged disruption could weigh on production, employment and real incomes.
At the July meeting, the BOJ kept its policy rate around 1%, though one member argued for a 25-basis-point increase to 1.25%.
The proposal was defeated, but members agreed that the bank should continue adjusting monetary accommodation in response to economic and price developments.
