A Bank of Japan board member signals gradual rate increases to align policy with a 2% neutral rate amid rising inflation risks.
Bank of Japan board member Naoki Tamura stated Japan’s neutral interest rate stands at approximately 2%, advocating gradual hikes to avoid abrupt tightening later. He emphasized the need to move the policy rate closer to this level over time, citing underlying inflation already hitting 2%.
Tamura noted inflation expectations have risen to around 2% and could climb further, with firms potentially passing on costs faster than in 2022. Unlike the Fed or ECB, Japan’s policy rate remains below neutral, complicating efforts to anchor inflation expectations. He also voted against pausing the taper of bond purchases next fiscal year.
Recent increases in long-term rates reflect market views on inflation and monetary policy prospects, aligning with fundamentals. Tamura stressed the need for future debate on an appropriate reserve level but called specific discussions premature.