BOJ's Hawkish Board Member Signals Multiple Rate Hikes in Fiscal 2025 to Target Inflation

In a speech to local business leaders in Nagano, Bank of Japan (BOJ) board member Naoki Tamura hinted at the possibility of two or more interest rate hikes in the upcoming fiscal year beginning in April. This move aims to mitigate upside risks to the central bank's stable inflation target.

Tamura stated that the short-term interest rate should reach 1% by the second half of fiscal 2025. He emphasized the need for timely and gradual rate increases to align with the enhanced prospect of achieving the price stability target.

Tamura reiterated his belief that the neutral rate is at least 1% and that the current rate of 0.75% remains substantially negative in real terms. This suggests that he sees further scope for raising borrowing costs.

The comments follow the BOJ's recent decision to raise its benchmark rate to 0.5%, accompanied by a pledge to hike rates further if its economic outlook materializes. Upon the release of Tamura's speech text, the yen strengthened against the dollar, trading at 151.82 compared to 152.30 before the announcement.

Tamura is widely regarded as the most hawkish member of the nine-person board. He was the sole advocate for a policy rate increase in December, a month before the BOJ's eventual action.

"It is now time for the Bank to moderate its aggressive monetary easing stance," he stated.