Bank of Japan board members are split over the future path of interest rates, minutes of the central bank’s monetary policy meeting in July showed.

During the meeting, the board noted that Japan’s economic activity and prices had been “developing generally in line with the Bank’s outlook.”

The BOJ’s July economic outlook mentioned that the country’s core inflation rate — which strips out prices of fresh food — would likely be around 2.5% for the 2024 fiscal year, and about 2% for the 2025 and 2026 fiscal year. Japan’s fiscal year starts on April 1, so the 2024 fiscal year will end in March 2025.

The central bank has set a 2% target for headline inflation.

The board also pointed out that import prices had turned positive again, and upside risks to prices required attention.

Some board members pointed out that “it was appropriate for the Bank to make moderate adjustments” given such risks.

Rates should be gradually adjusted upward to prevent the risk of a situation where inflation exceeds the 2% target and rapid rate hikes are needed at a later time, one member said.

Others appeared to disagree: “Normalization of monetary policy must not be an end in itself,” said a member, adding that future policy needed to be “conducted carefully” by monitoring the various risks associated with the bank’s goal of normalizing its policy.

Another member pointed out that medium-to long-term inflation expectations were not anchored at 2%, and prices remained vulnerable to downside risks. As such, the BOJ should avoid a situation where the market expectations for future rate hikes “increase excessively.”

The BOJ raised its benchmark policy rate to “around 0.25%” in a 7-2 split decision in July, marking its highest interest rate since 2008.

Board members Toyoaki Nakamura and Asahi Noguchi dissented, with both impressing on the need to study more economic and corporate data.

At the July meeting, the bank had also outlined its plan to reduce its purchases of Japanese government bonds to about 3 trillion yen ($19.64 billion) per month in the January to March 2026 quarter. As of its March release, the bank said that purchases of JGBs amounted to about 6 trillion yen per month.

Shortly after the BOJ’s decision on July 30, the yen strengthened for five straight days to hit its strongest level in eight months.

The strength of the yen lead to the unwinding of the so called “yen carry trade,” putting pressure on equities.

This, combined with recession fears from disappointing economic data out of the U.S. at that time, sent the Nikkei into a meltdown, with the index recording three straight days of losses from July 31, including a 12.4% loss on Aug. 5, its worst day since 1987.