BOJ debated mounting price risks even upon hiking rates in June, minutes show

The meeting of the Bank of Japan (BOJ) in August saw discussions about mounting price risks even as the central bank decided to hike interest rates in June. U.S. Treasury Secretary Scott Bessent's public statements have given the BOJ little choice but to hike rates at its September meeting, sparking questions about U.S. influence on domestic policy.

Bessent emphasized that intervention in currency markets needs to be followed by rate hikes to curb concerns of inflation, which have led to rising yields of Japanese government bonds (JGBs) and risked spilling over to U.S. Treasury yields. While the BOJ shares the view that further rate hikes are necessary, there are concerns about the precedent U.S. pressure sets for Japanese policy.

Former BOJ executive Kazuo Momma stated that while the joint intervention gives the BOJ a free hand to raise rates, it comes with a catch. Intervention can buy time, but it may prove useless without subsequent BOJ rate hikes. The U.S. intervention, Momma added, is a grave matter as it would be akin to betrayal if Japan's government were to block the BOJ from raising rates.

Japan's law grants the central bank independence from political interference, but also requires close coordination with the government's economic policy.