Some Bank of Japan board members, at a policy meeting in July, called for resuming interest rate hikes in the future, even as the board decided unanimously to keep borrowing costs steady, minutes of the July gathering showed on Thursday.
While some members saw underlying inflation still short of the BOJ's 2% target, others saw inflation expectations approaching steadily or already having hit 2%, the minutes showed in a sign of growing awareness within the board of mounting inflationary pressure.
At a subsequent meeting in September, two board members dissented from the BOJ's decision to keep interest rates steady at 0.5%, instead calling unsuccessfully for a hike to 0.75%.
The July discussion reinforces the dominant market view that the BOJ will raise interest rates again this year as a U.S.-Japan trade agreement has reduced uncertainty over the economic outlook.
"The BOJ's policy rate is lower than the level deemed neutral, with prices remaining relatively high and the output gap being around zero recently," one member was quoted as saying in the minutes of the July meeting. "In such a situation, it's appropriate for the BOJ to return the policy rate to its neutral level where possible," the member added.
Another member said the BOJ should "avoid being overly cautious and miss the opportunity" to raise rates with stock prices reacting positively to the U.S.-Japan trade deal, the minutes showed.
Several other opinions also called for timely rate hikes with one saying the BOJ could see scope to hike again by the end of this year if the hit from U.S. tariffs proves limited.
The BOJ ended a decade-long, massive stimulus last year and raised interest rates to 0.5% in January on the view Japan was on the cusp of durably achieving its 2% inflation target.
While Governor Kazuo Ueda has signaled the bank's readiness to keep raising rates, he stressed the need to tread cautiously due to the expected hit to Japan's exports from U.S. tariffs and uncertainty over the U.S. economy.
At the July meeting, one member said the BOJ should wait for "a bit more data" as U.S. inflation and job market developments could cause big swings in U.S. monetary policy and exchange-rate moves, the minutes showed.
Others, however, said the United States was likely to avoid recession, while the impact of higher U.S. levies on Japan's economy could prove limited, the minutes showed.
The board also debated at length on Japan's inflation outlook.
While one member said the recent overshoot in inflation was due largely to a temporary spike in food costs, others warned that persistent food inflation could push up, or keep elevated, public perceptions of future price moves, the minutes showed.
"The fact there was so much debate about inflation shows many board members are worried about upward price risks," said Mari Iwashita, executive rates strategist at Nomura Securities, who sees the chance of a rate hike in October.
