Naoki Tamura, a member of the Bank of Japan’s board, has called for a more aggressive increase in the central bank’s benchmark rate than many economists had anticipated. In a speech to local business leaders in Okayama on Thursday, Tamura suggested that Japan’s neutral policy rate should be set at 1% or higher. He emphasized the need to elevate the short-term rate to approximately 1% during the latter half of the bank’s projection period, extending through fiscal 2026, to manage inflation risks and achieve stable, sustainable inflation.
Market Reaction and Immediate Policy Outlook
Following Tamura’s comments, the yen initially strengthened against the dollar before settling back. As the most hawkish member of the BOJ’s nine-member board, Tamura signaled a gradual increase from the current 0.25% rate. This comes a day after fellow board member Junko Nakagawa’s remarks, which had led to the yen reaching its highest level of the year. Despite his support for future rate hikes, Tamura suggested that no immediate policy changes are necessary at the upcoming board meeting.
Future Rate Hikes and Economic Conditions
Tamura remained non-committal about the timing of further rate hikes in 2024, stating that decisions will depend on economic conditions, inflation, and financial factors. He emphasized that any adjustments would likely be gradual compared to those in the US and Europe. Tamura also pointed out that having a target neutral rate aids in timely policy adjustments.
Current BOJ Outlook and Market Pricing
Currently, the BOJ’s outlook anticipates that inflation will meet its target level from October 2024 through March 2027. While Governor Kazuo Ueda and other board members have avoided specifying a precise neutral rate, Tamura believes the market’s current pricing of the BOJ’s policy path might be overly conservative. His previous forecasts, including a 2023 prediction of achieving a 2% inflation rate by early 2024 and calls for a policy review in December 2022, have been seen as indicators of the BOJ’s future direction.
Conclusion
Tamura’s remarks highlight a potential shift in the Bank of Japan’s monetary policy stance, suggesting a more aggressive approach to rate hikes than previously expected. As the BOJ navigates its policy path, Tamura’s insights will likely influence market expectations and the central bank’s decisions in the coming months.
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