BOJ may need rapid rate hikes if inflation accelerates, board member Masu warns
BOJ board member Kazuyuki Masu says the central bank may be forced to raise rates rapidly if inflation accelerates, citing producer price spikes and a weak yen.
Bank of Japan board member Kazuyuki Masu has said the central bank could be compelled to raise interest rates quickly should inflation accelerate, noting that financial conditions in the country remain accommodative.
In a speech, Masu flagged a recent surge in producer prices as a development that warrants close attention, warning it could feed into consumer inflation more strongly than in past episodes. Companies are increasingly passing on higher costs linked to the Middle East conflict and the weak yen, he said.
Rising fuel and chemical prices stemming from the war in Iran could lift transportation costs, which — combined with higher food prices — may have a lasting impact on overall prices, according to Masu.
"Financial conditions in Japan remain accommodative. If inflation accelerates here, there is a risk we might inevitably need to rapidly raise interest rates," he said.
Masu said underlying inflation has not yet reached the BOJ's 2% target but is quite close to it. He argued that the policy rate still falls solidly within the estimated range of the neutral interest rate, giving the central bank room to raise it further and preserve the flexibility to adjust quickly in either direction as economic conditions evolve.
"I am convinced the BOJ needs to raise its policy rate further as it falls solidly within the estimated range of the neutral interest rate, thereby ensuring the flexibility needed to swiftly adjust the policy rate in either direction, depending on economic conditions," he said.
Market expectations point to the BOJ lifting rates to 1.25% on September 18 and then to 1.75% in the second quarter of 2027, earlier than previously anticipated, amid persistent concerns over broadening price pressures and yen weakness.