Hawkish BOJ Board Member Says Rates Should Be Raised to at Least 1% — Update

By Megumi Fujikawa

Bank of Japan policy board member Naoki Tamura said the central bank should raise interest rates to around 1% in the near future, fueling expectations of several rate increases.

In a speech Thursday to business leaders in the western prefecture of Okayama, Tamura said short-term interest rates should be raised to at least around 1% in the latter half of the bank's projection period. Japan's neutral interest rate is likely around that level, he said.

The BOJ's policy board currently shows its forecast for the economy and prices for three years until March 2027. That means Tamura expects interest rates to reach 1% sometime between October 2025 and March 2027.

It "is necessary to mitigate upside risks on prices and achieve our price stability target in a sustainable and stable manner," Tamura said.

Following his hawkish remarks, the yen strengthened to around 142.30 to the dollar, compared with 142.90 in early Thursday trading.

The pace of rate increases expected by the markets is very slow, Tamura said, adding that such a pace will likely raise upside risks on prices and may eventually force the BOJ to raise interest rates rapidly.

Economists expect the BOJ to keep rates steady at its policy-setting meeting next week after it raised the rate target to 0.25% in July.

The yen's recent appreciation has eased pressure on prices to some extent. The pace of increases in corporate-goods prices slowed for the first time in eight months, according to BOJ data released Thursday.

Japan's corporate-goods prices rose 2.5% from a year earlier in August, compared with a 3.0% increase in July.

Tamura said, however, that upside risks to the price outlook are growing amid labor shortages and an uptrend in wages. In recent years, Japanese companies have tended to pass a larger portion of import costs on to their product prices than in the past, he said.

Tamura, a former executive at Sumitomo Mitsui Financial Group, is known as a hawkish BOJ board member.

Write to Megumi Fujikawa at megumi.fujikawa@wsj.com

(END) Dow Jones Newswires

September 12, 2024 00:35 ET (04:35 GMT)

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