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Bank of Japan board members are concerned about the risk of inflation rising faster than expected and the health of the bond market, according to minutes of last month’s policy meeting released on Monday.

Japan’s core consumer prices, which exclude volatile food prices, hit 2.8 per cent in August, but the BoJ expects inflation to fall back below 2 per cent in the next fiscal year and has rigorously maintained its ultra-loose monetary policy.

According to the minutes, one member said: “Among other risks, that of consumer prices deviating significantly upward from the baseline scenario, including the impact of foreign exchange rates, needs to be examined humbly and without any preconceptions.”

Following last month’s meeting, the Japanese government spent nearly $20bn to intervene in the currency markets to stem the yen’s plunge. In the bond market, the BoJ has also been forced to significantly increase its bond purchases to enforce a cap on 10-year bond yields at close to zero, a policy called yield curve control.

Line chart of ¥ per $ showing The yen's wild ride

One member noted the market concerns about a decline in the functioning of the bond market and called for the need to communicate clearly about its exit strategy.

“With a view to ensuring financial market stability, it is important for the Bank to continue to monitor and examine market conditions and, at some point in the future when the timing is considered appropriate, to make proper communication with the markets, such as regarding exit strategies,” the member said.

Earlier on Monday, the BoJ’s Tankan index, widely regarded as Japan’s most reliable economic data series, showed that sentiment among large Japanese manufacturers continued to decline amid concerns about the yen’s decline and the rising costs of imported goods.

The index fell to plus 8 in September from plus 9 in June, which compared with analyst expectations of plus 11.

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