The BOJ raised its key rate to a 31-year high of 1.25% as had been widely expected, joining the U.S. Federal Reserve just days before and the European Central Bank last week in tightening policy to fight persistent inflationary pressures from soaring crude oil prices.
Dovish board members Toichiro Asada and Ayano Sato, both appointees of reflationist Prime Minister Sanae Takaichi, dissented from the decision.
The spotlight now falls on BOJ Governor Kazuo Ueda's 0630 GMT press conference as markets seek clues on the pace and extent of further policy tightening.
"Probably some were surprised because two members opposed the decision and maybe some were expecting some mention of a 50 basis point hike," said Tohru Sasaki, chief strategist at Fukuoka Financial Group.
"Ueda-san has to be very hawkish to keep the yen from depreciating, but I think it's a bit difficult for him to be so hawkish," Sasaki said. "He has to say that the BOJ will probably hike the policy rate again within this year."
After Friday's move, markets expect the BOJ to continue raising rates in 25-basis-point increments roughly once a quarter, doubling its previous pace of tightening.
Five-year JGB yields JP5YTN=JBTC extended declines, similar to 2-year yields, to be down 3 bps at 2.265%.
However, 10-year yields JP10YTN=JBTC pared declines, although they were still down 0.5 bp on the day at 2.985%.
The so-called super-long JGB yields flipped to be higher, with the 20-year yield JP20YTN=JBTC up 1.5 bps at 3.85% and the 30-year yield JP30YTN=JBTC up 3 bps at 4.105%.
Longer-dated bonds tend to reflect views on inflation and fiscal sustainability.
"Dissent by two members suggests political pressure on the BOJ has not entirely faded," said Kanako Nakamura, an economist at Daiwa Institute of Research.
"The reappointment of (Economy) Minister (Minoru) Kiuchi in the cabinet reshuffle also signals continued support for expansionary fiscal policy, raising concerns that fiscal stimulus could add to inflation pressures."
EWJ•
