Bank of Japan (BoJ) board member Naoki Tamura expressed on Thursday that the central bank should implement a gradual interest rate hike, aiming for a rate of approximately 1% by the latter half of fiscal 2025.
In his comments, Tamura emphasized the need for a timely and gradual approach to rate increases, noting concerns over the potential negative impact of persistently high rice prices and prolonged inflation above 2% for nearly three years on consumer spending.
Tamura also pointed out that a 0.75% interest rate would still be negative in real terms. He clarified that there is no preconceived notion on the direct impact of a rate hike, although he acknowledged supply constraints that are putting upward pressure on prices and the potential for the output gap to turn positive.
He further noted that corporate and household inflation expectations are rising, with expectations approaching the 2% level, contributing to growing price risks. In light of this, he believes that a nominal neutral interest rate should be no less than 1% and expects this level to hold in the second half of fiscal 2025.
Tamura also expressed skepticism about the overall effectiveness of the BoJ’s past aggressive monetary easing, citing its strong side effects. He stressed the importance of scrutinizing whether prolonged easing could lead to issues such as excessive yen depreciation and rising housing prices.
Market reaction: Following Tamura’s remarks, the USD/JPY pair declined by 0.49% on the day, trading at 151.94.
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