Bank of Japan Signals Multiple Interest Rate Hikes to Curb Inflation
Naoki Tamura, the most hawkish member of the Bank of Japan's board, has advocated for two or more interest rate hikes by early next year. This move aims to mitigate the rising risks of inflation.
Tamura states that the short-term interest rate should reach 1% by the second half of fiscal 2025, a significant increase from the current 0.5%. He emphasizes the need for timely and gradual rate increases in response to the increasing likelihood of achieving the bank's price stability target.
Tamura's speech fuels market speculation about additional rate hikes. The yen briefly strengthened against the dollar following his comments, indicating market confidence in the BOJ's continued policy normalization.
Tamura reiterates his belief that the neutral rate is at least 1% and that it should reach that level by the second half of the fiscal year ending March 2025. He suggests that a 0.75% rate would remain negative in real terms and significantly below neutral, leaving room for further borrowing cost increases.
The extent of Tamura's views among the rest of the BOJ board is unclear. While he anticipates the stable inflation target to be met by the second half of fiscal 2025, Governor Kazuo Ueda predicts underlying inflation to reach 2% by fiscal 2026.
Tamura's comments come after the BOJ raised its benchmark rate to 0.5% last month, with a pledge to further hike rates if necessary. BOJ watchers anticipate another rate increase around mid-year, with July being the most probable month.
However, Tamura declined to specify the timing or pace of future rate increases at a press conference. He emphasized that the decision would depend on economic data and that the market expectation of rate hikes every six months is not a predetermined plan.