By Megumi Fujikawa

TOKYO--Bank of Japan policy board members have grown more cautious about the potential inflationary impact of a weak yen, meeting minutes show, as markets stay on alert for any sign of action to stabilize the currency.

The yen weakened to nearly 160 against the dollar earlier this month, levels not seen since July 2024 when the Japanese government conducted record-scale yen-buying operations. Vigilance over possible intervention--potentially with U.S. coordination--has since eased depreciation pressure but officials have signaled that they stand ready to act if needed.

While the decision on intervention lies with Japan's finance ministry, minutes from the BOJ's meeting last month underline that the central bank is keeping a close eye on the yen.

"With firms' behavior shifting more toward raising wages and prices, the yen's depreciation would more likely push up prices through factors such as rising import prices," some members said, according to minutes from the central bank's Dec. 18-19 meeting released Wednesday.

In its final decision of 2025, the BOJ lifted its policy rate to a three-decade high as policymakers became more confident about wage growth.

But the yen's rapid depreciation since then could complicate the central bank's assessment of wage-price growth dynamics. A weak yen fuels cost-push inflation and reduces households' purchasing power, rather than the demand-led growth policymakers are targeting.

The meeting minutes showed that some BOJ board members pointed out the possibility that rising import prices could affect underlying inflation by altering inflation expectations.

A few members said developments in long-term interest rates should be monitored carefully, according to the minutes.

Sharp moves in Japanese government bonds have drawn global attention to Japan's fiscal policymaking, as fears of ramped up spending sparked a selloff that spilled over into other bond markets.

The BOJ's policy steering may become more complex down the road as Prime Minister Sanae Takaichi pushes forward a plan to suspend the sales tax on food and beverages, a move that could both push down prices and boost consumption.

If her Liberal Democratic Party wins a lower house election next month, it will have a stronger mandate to implement more aggressive economic policies.

Takaichi has repeatedly stressed her commitment to fiscal sustainability, promising that the tax suspension will not be funded by new deficit-financing bonds.

The benchmark 10-year JGB yield was last hovering near the 27-year high of 2.38% recorded last week.

Against the backdrop of yen and bond volatility, markets are reassessing the timeline for the next rate hike by the BOJ. After raising interest rates to 0.75% in December from 0.50%, the central bank held steady in its first decision of 2026.

In the minutes of the December meeting, one BOJ member noted that the yen's depreciation and the rise in long-term bond yields reflected to some extent that the policy rate is too low relative to inflation.

"Raising the policy interest rate in a timely manner could curb future inflationary pressure and lead to holding down long-term interest rates," the member said.

Write to Megumi Fujikawa at megumi.fujikawa@wsj.com

(END) Dow Jones Newswires

January 27, 2026 21:46 ET (02:46 GMT)

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