(Bloomberg) -- Bank of Japan board members discussed the possibility of pursuing a faster pace of policy normalization amid ongoing risks that the weak yen’s effect on inflation might force a response by the bank, according to minutes from the April policy meeting. 

“Some members pointed out that exchange rates were one of the important factors affecting economic activity and prices, and that monetary policy responses would be necessary” if currencies affect the inflation outlook, including spurring upside risks, according to the minutes released Wednesday.  

The minutes signal the potential for a BOJ rate hike as early as July even as market speculation for such a move has cooled somewhat after the bank last week said it would specify next month how it plans to reduce bond buying. 

BOJ watchers will parse data for clues about inflation and the strength of the economy over the next month. Data due Friday are expected to show consumer inflation picked up to 2.6% in May, in what would be the 26th consecutive month of price gains matching or exceeding the bank’s 2% inflation target.

Some central banker opinions signaled the need to raise rates at the right time or even conduct an insurance hike to preempt the need for the sort of rapid pace of increases seen in the US and Europe in recent years.

One member said “to avoid any rapid policy changes, one option was to adjust the degree of monetary accommodation by conducting moderate policy interest rate hikes before the likelihood of realizing the outlook for economic activity and prices rose sufficiently,” the minutes showed.

There is “a good chance” of a rate hike at the July 30-31 meeting depending on incoming data, Ueda said in parliament Tuesday. The central bank decided to reduce bond buying at its policy meeting last week and reveal details of the plan at the next gathering. Some analysts said that unveiling a blueprint for quantitative tightening is significant enough that it might rule out a simultaneous rate hike. 

Ueda and his nine-member board will be examining how the yen hovering near a 34-year low versus the dollar affects inflation. Price growth is already expected to stay around BOJ’s 2% goal in coming three years in its April quarterly projections. 

One complication is Japan’s lackluster recovery. The economy shrank in the first three months of this year, the second contraction in three quarters with consumer spending falling due partly to inflation.      

One member “pointed out that the key factors were whether positive corporate behavior could be confirmed through summer 2024 from, for example, business fixed investment, and whether private consumption would improve, reflecting wage hikes,” the minutes showed. 

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