A hawkish Bank of Japan (BOJ) board member called for a faster pace of interest rate hikes, suggesting increases every few months, according to a recent summary of opinions from the central bank's June 15-16 policy meeting. This member emphasized the need to bring Japan's policy rate closer to the estimated neutral interest rate, which is considered neither stimulative nor restrictive for the economy. Unlike in the United States and Europe, Japan's policy rate, even after the recent hike to 1%, remains below this neutral range.
The BOJ had already raised its policy rate to a 31-year high of 1% in mid-June, signaling a readiness for further tightening to combat inflation spurred by the Iran-war-induced energy shock. Several other board members also advocated for continued rate increases, reinforcing the central bank's commitment to its policy normalization path. One member specifically estimated Japan's neutral rate to be around 2% and urged the BOJ to reach this level sooner through more frequent hikes.
The discussions highlight a growing consensus within the BOJ for quicker action on interest rates, with market analysts now predicting another hike by year-end. A Reuters poll, conducted before the June meeting, showed most economists expected a rate hike to 1.25% in the fourth quarter. The central bank's resolve to keep raising rates is also supported by Governor Kazuo Ueda, who reiterated this stance as underlying inflation approaches the 2% target and financial conditions remain accommodative. The government, however, expressed some reservations, indicating a need for appropriate measures in case of excessive economic fluctuations.
