Bank of Japan Possible Shift; Ideas Later.

Bank of Japan policymaker calls for more interest rate hikes in 'gear shift'

Article source: https://mainichi.jp/english/articles/20260226/p2g/00m/0bu/038000c

Article to be deleted after ideas.

Article:

TOKYO (Kyodo) -- The Bank of Japan should stay on the path for more interest rate hikes to deal with rising prices in "another gear shift" in its monetary policy following the end of unorthodox monetary easing steps two years ago, a policymaker said Thursday.

Hajime Takata, known as one of the BOJ's most hawkish board members, said Japan's real interest rates remain significantly lower than the rates seen overseas and financial conditions are still accommodative, encouraging consumers and businesses to borrow.

"It is necessary to conduct further rate hikes in a gradual manner," he said in a speech in Kyoto.

The bank's 2 percent price stability target has "almost" been achieved, Takata said, warning that "Japan might face greater-than-expected upswings in prices if overseas factors that push up prices emerge."

In a press conference later in the day, he said the weaker yen, which pushes up import costs, is affecting the country's underlying inflation.

The BOJ policymaker pointed out that companies are increasingly taking steps to pass on their costs to consumers.

Given the possibility of further inflation, Takata noted the risk of the bank "falling behind the curve," or being slow in rate hikes, depending on various situations including monetary tightening moves by foreign peers to stem inflation.

In its previous monetary policy meeting in January, the central bank left its benchmark interest rate unchanged at 0.75 percent after raising it to a 30-year high at the December policy meeting.

Takata had proposed a rate hike to around 1 percent at the January meeting, citing upward risks to prices, though it was voted down, according to the BOJ.

In March 2024, the bank exited from unorthodox monetary easing steps of the past decade, scrapping its negative interest rate policy and "yield cap program," convinced by robust wage growth leading toward its long-elusive 2 percent inflation goal.

Financial markets had expected the BOJ to raise rates at least once in the first half of this year due to the weakening of the yen, which mounted inflationary pressure.

However, the outlook became unclear on Wednesday when the government proposed two academics who favor reflationary policies as Policy Board members. Both are seen as proponents of monetary easing and supporters of Prime Minister Sanae Takaichi's aggressive fiscal spending policy.

The prospect is also uncertain because, according to a report, Takaichi expressed reluctance toward additional rate increases in a meeting with BOJ Governor Kazuo Ueda last week.