Monetary Policy Meeting Minutes: September 17–18

These minutes, which summarize the proceedings as prescribed in Article 20, Paragraph 1 of the Bank of Japan Act, were approved at the Policy Board meeting on Monetary Policy held on October 29–30, 2026. The meeting covered by these minutes was held on September 17–18, 2026.

Based on staff reports and the Board’s discussions, overseas economies were assessed as growing moderately overall despite some weakness stemming from the situation in the Middle East, while Japan’s economy was recovering moderately despite some weak movements. Looking ahead, higher crude oil prices were expected to weigh on activity, while AI-related demand, government measures, and accommodative financial conditions would provide support; the economy was expected to continue growing moderately for the time being and then increase its growth rate.

Many members considered that the year-on-year rate of increase in the consumer price index had expanded, reflecting higher import prices and the pass-through of wage increases to selling prices, and that the underlying rate of increase was approaching 2%. From the second half of fiscal 2026 onward, the CPI rate of increase was expected to clearly exceed 2%, while the underlying rate of increase was projected to be broadly consistent with the price stability target from the second half of fiscal 2026 through fiscal 2027.

The post-meeting statement explained that accommodative financial conditions would be maintained after the policy rate increase and would continue to provide firm support for economic activity.

The guideline for money market operations was to encourage the uncollateralized overnight call rate to remain at around 1.25% until the next meeting. The rate applied under the Complementary Deposit Facility was set at 1.25%, and the basic discount rate and basic loan rate at 1.5% per annum; the changes would take effect on September 24, the next business day. Both proposals were decided by 7 votes to 2. Members Asada and Sato dissented, arguing that the rate should be left unchanged because the inflation rate was below 2% and there was no clear acceleration in the economy.

Unanimously, members decided to change the Climate Response Financing Operation from a fixed to a variable interest rate, and to set a total lending cap of 50 trillion yen and a cap of 10 trillion yen per borrower, to provide stable support for private-sector climate change initiatives and ensure smooth market operations. The Funds-Supplying Operation to Support Financial Institutions in Disaster Areas was also changed to a variable rate. Under the Funds-Supplying Operations against Pooled Collateral, a variable-rate method was added as an option alongside the interest-rate bidding and fixed-rate methods. Given the operation’s track record and other factors, the Bank judged that the Great East Japan Earthquake operation had achieved its original purpose and would remove the earthquake from covered disasters with lending in May 2027.

In Japan, exports and industrial production turned upward against a backdrop of AI-related demand. Corporate profits remained high, and business fixed investment was on a moderate upward trend despite the impact of rising construction costs. Private consumption remained resilient, supported by improvements in the employment and income situation despite weak household sentiment, while labor market conditions remained tight. Looking ahead, worsening terms of trade due to higher crude oil prices were expected to slow activity, while AI-related capital investment and government measures were expected to provide support.

According to the staff report, the year-on-year rate of increase in the domestic corporate goods price index was in the 7% range, reflecting increases in petroleum and coal products, chemicals, nonferrous metals, and machinery. The year-on-year rate of increase in services producer prices for services to businesses, excluding international transportation, was around 3%, reflecting the pass-through of labor costs. The year-on-year rate of increase in the consumer price index excluding fresh food was recently in the upper 1% range, and inflation expectations were rising moderately. Government subsidies for fuel oil and summer electricity and gas bills were expected to keep near-term inflation around 2%. In the second half of the fiscal year, however, the positive rate of increase was expected to expand to above 3%, as price increases excluding fresh food and energy gathered pace and electricity and gas bills rose due to higher LNG import prices.

Members said they needed to closely monitor, as risks to the outlook, the effects of the situation in the Middle East on financial and foreign exchange markets and on Japan’s economy and prices, as well as AI-related demand and foreign exchange fluctuations. Several members noted that higher crude oil prices and supply constraints could intensify upward pressure on prices, while also warning that if AI investment did not generate returns, it could lead to asset price fluctuations and adjustment pressures.