The Bank of Japan (BOJ) has left the door open for additional interest rate increases, even after raising its benchmark rate in January, as it looks to ensure inflation stabilizes at its 2% target.

The central bank emphasized that further adjustments will depend on economic data, particularly wage growth and price trends, underscoring its commitment to a gradual but deliberate tightening path, according to the minutes of the BOJ's monetary policy meeting on Jan. 23 and 24 released Tuesday.

In January, the BOJ raised its short-term policy rate by 25 basis points, the second hike since ending negative rates in 2024-citing sustained inflation and a strengthening wage-price cycle.

Japan's core inflation (excluding fresh food) is projected to remain elevated at 2.5% to 3.0% in FY2024 before easing to about 2.5% in FY2025, driven by rising service prices, lingering cost pressures, and higher import costs from a weaker yen.

While the BOJ expects inflation to moderate, policymakers flagged upside risks, including potential further yen depreciation and faster-than-expected wage hikes.

A key factor in the BOJ's decision was the broadening wage increases, with major firms signaling further raises in the 2025 spring labor negotiations.

However, concerns linger over whether small and medium-sized enterprises can sustain similar pay hikes, given their tighter profit margins.

The BOJ maintained its view that Japan's economy is recovering moderately, supported by resilient private consumption and a rebound in business investment. Exports and industrial production are expected to pick up, aided by recovering global demand for technology goods.

Governor Kazuo Ueda stressed that further rate increases will be data-dependent, but the BOJ's baseline suggests additional hikes could come if inflation stays above target. Some policymakers hinted that rates could reach 1% by late 2025 if economic conditions align with projections.

Financial markets reacted calmly to the hike, with the yen stabilizing after initial volatility. The Japanese government endorsed the move, urging the BOJ to maintain close coordination to ensure a smooth economic transition.