The Bank of Japan left its key policy rate unchanged for a fifth month at 0.50% on Thursday, a widely expected move that sets the scene for a possible rate hike next month.
Atsushi Mizuno, regarded as one of the most hawkish members of the nine-member board, voted against keeping rates steady.
"The market was expecting (Miyako) Suda to join Mizuno in voting for a hike," said Sharada Selvanathan, a currency strategist at BNP Paribas in Singapore. "This doesn't mean that an August hike is off the cards, but the disappointing split will be taken as a dovish sign and hence prove yen negative," Selvanathan said.
The U.S. dollar initially jumped to around 122.40 against the yen after announcement, while the euro climbed to an intraday high of 168.35 against the yen. September Japanese government bond futures inched up to 131.76, against 131.65 before the announcement.
The BOJ has kept policy on hold since raising the overnight call rate target to 0.50% in February, the first rate hike since July last year. Many market players expect the central bank to raise interest rates to a 12-year high of 0.75% as early as August.
The policy decision came as little surprise as a recent mixed bag of data -- unexpectedly weak output, sliding consumer prices and a mildly positive tankan business sentiment survey -- has led markets to believe the BOJ will wait at least another month before notching up rates.
The focal point had thus been whether some of the more hawkish members of the board would propose hiking the key rate.
Financial markets will scrutinize comments by the bank's governor, Toshihiko Fukui, on the timing and pace of future rate hikes at his post-meeting news conference scheduled later in the session. The BOJ will release its monthly economic report just before the news conference.
Likely Choice
Together with the monthly report, the BOJ will give a mid-term review of its twice-yearly economic and price outlook report issued in April, in which it is expected to say economic and price conditions are moving in line with its basic scenario.
BOJ officials have said the central bank will raise rates gradually in line with improvements in the economy and prices.
Many market players take this to mean a rate hike every half year or so, making August a likely choice after the previous rate hike in February, although the bank has said it will not raise rates at set intervals.
The February move came after a split vote to keep rates on hold in January, when BOJ board members Mizuno, Suda and Tadao Noda voted against the majority and proposed raising rates to 0.5%.
BOJ officials have said the central bank needs to gradually raise rates to avoid the risk of sharp economic swings in the future or an imbalance in asset distribution, which could appear in the form of sharp rises in property prices or excessive yen weakness.
John Snow, who served as U.S. Treasury Secretary for three years until June 2006, said on Wednesday that the BOJ's monetary policy deserved "increased scrutiny" because of the risk that short-term yen interest rates are being held too low at the cost of a weaker Japanese currency.
"Ultimately exchange rates reflect monetary policy," Snow, now chairman of Cerberus Capital Management, said in an interview with Reuters.
"That's the puzzle: why are interest rates so low when the (Japanese) economy is doing so well with a trade surplus? Why is there that interest rate gap? One would expect there are real consequences from having that sort of gap."